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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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|CHECKBOX |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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|         |  | OF 1934                                                                     



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| | For the fiscal year ended December 31, 2001

OR

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|BOX |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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|    |  | EXCHANGE ACT                                                       



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| | For the Transition period from  to

Commission file number 0-20328

AMTROL Inc.
(Exact Name of Registrant as Specified in Its Charter)

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|Rhode Island                             |  | 05-0246955         
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|(State or Other Jurisdiction of          |  | (I.R.S. Employer   
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|Incorporation or Organization)           |  | Identification No.)
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|1400 Division Road, West Warwick, RI     |  | 02893              
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|(Address of Principal Executive Offices) |  | (Zip Code)         

Registrants telephone number, including area code: (401) 884-6300
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CHECKBOX No BOX .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. CHECKBOX

State the aggregate market value of the Registrants voting and non-voting
common equity held by non-affiliates as of March 29, 2002: $0

Indicate the number of shares outstanding of each of the Registrants classes
of common stock, as of the latest practicable date: $0.01 Par Value: 100
shares outstanding as of March 29, 2002.

Documents Incorporated by Reference: None





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TABLE OF CONTENTS



|                                                                           |                                                                                              |                                            |  |  |  |  |  | 
|-------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I                                                                    
|                                                                           | ITEM 1. BUSINESS                                                                            
|                                                                           |                                                                                              | Background                                
|                                                                           |                                                                                              | Operations                                
|                                                                           |                                                                                              | Products And Markets                      
|                                                                           |                                                                                              | Distribution and Marketing                
|                                                                           |                                                                                              | Manufacturing, Raw Materials and Suppliers
|                                                                           |                                                                                              | Seasonality and Backlog                   
|                                                                           |                                                                                              | Patents, Trademarks And Licenses          
|                                                                           |                                                                                              | Competition                               
|                                                                           |                                                                                              | Employees                                 
|                                                                           |                                                                                              | Environmental Matters                     
|                                                                           | ITEM 2. PROPERTIES                                                                          
|                                                                           | ITEM 3. LEGAL PROCEEDINGS                                                                   
|                                                                           | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 
|PART II                                                                   
|                                                                           | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS               
|                                                                           | ITEM 6. SELECTED FINANCIAL DATA                                                             
|                                                                           | ITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                           | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK                            
|                                                                           | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                         
|                                                                           | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|PART III                                                                  
|                                                                           | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                 
|                                                                           | ITEM 11. EXECUTIVE COMPENSATION                                                             
|                                                                           | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                     
|                                                                           | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                     
|PART IV                                                                   
|                                                                           | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                    
|Report of Independent Public Accountants                                  
|Item 14(a)(2) SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|SIGNATURES                                                                
|EXHIBIT INDEX                                                             
|EX-10.12 LOAN & SECURITY AGREEMENT (FOOTHILL)                             
|EX-10,13 LOAN & SECURITY AGREEMENT W/CYPRESS                              
|EX-10.14 SUBSIDIARY GUARANTY AGREEMENT (CYPRESS)                          
|EX-10.15 CONTRIBUTION AGREEMENT (CYPRESS)                                 
|EX-10.16 SUBSIDIARY GUARANTY (FOOTHILL)                                   
|EX-10.17 CONTRIBUTION AGREEMENT (FOOTHILL)                                
|EX-21 SUBSIDIARIES                                                        
|EX-99 LETTER TO COMMISSION PURSUANT TO TEMP NT 3T                         



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##### Table of Contents



TABLE OF CONTENTS

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|         |  | Item 1- Business                                                                              |  |     
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|         |  | Background                                                                                    |  | 3   
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|         |  | Operations                                                                                    |  | 3   
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|         |  | Products and Markets                                                                          |  | 4   
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|         |  | Distribution and Marketing                                                                    |  | 6   
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|         |  | Manufacturing, Raw Materials and Suppliers                                                    |  | 7   
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|         |  | Seasonality and Backlog                                                                       |  | 9   
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|         |  | Patents, Trademarks and Licenses                                                              |  | 9   
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|         |  | Competition                                                                                   |  | 9   
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|         |  | Employees                                                                                     |  | 9   
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|         |  | Environmental Matters                                                                         |  | 9   
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|         |  | Item 2- Properties                                                                            |  | 10  
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|         |  | Item 3- Legal Proceedings                                                                     |  | 11  
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|         |  | Item 4- Submission of Matters to a Vote of Security Holders                                   |  | 11  
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|PART II  |  |                                                                                               |  |     
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|         |  | Item 5- Market for Registrants Common Equity and Related
Stockholder Matters                 |  | 11  
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|         |  | Item 6- Selected Financial Data                                                               |  | 12  
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|         |  | Item 7- Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 13  
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|         |  | Item 7A- Quantitative and Qualitative Disclosures of Market Risk                              |  | 20  
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|         |  | Item 8- Financial Statements and Supplementary Data                                           |  | 21  
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|         |  | Item 9- Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure  |  | 21  
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|PART III |  |                                                                                               |  |     
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|         |  | Item 10- Directors and Executive Officers of the Registrant                                   |  | 22  
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|         |  | Item 11- Executive Compensation                                                               |  | 24  
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|         |  | Item 12- Security Ownership of Certain Beneficial Owners and
Management                       |  | 26  
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|         |  | Item 13- Certain Relationships and Related Transactions                                       |  | 27  
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|PART IV  |  |                                                                                               |  |     
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|         |  | Item 14- Exhibits, Financial Statement Schedules, and Reports on                              |  |     
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|         |  | Form 8-K                                                                                      |  | 28  

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|--------------------------------------------------------------------------- |  |  | -- | 
|Report of Independent Public Accountants                                    |  |  | 29 | 
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|Item 14 (a)(2) Schedule II  Valuation and Qualifying Accounts and Reserves |  |  | 48 | 
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|Signatures                                                                  |  |  | 49 | 
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|Exhibit Index                                                               |  |  | 50 | 
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|Subsidiaries of Registrant                                                  |  |  | 51 | 

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PART I




ITEM 1.     BUSINESS




Background



| |  | AMTROL Inc., together with its subsidiaries (AMTROL or the Company),
is a leading international designer, manufacturer and marketer of
expansion and pressure control products used in water systems
applications and selected sectors of the HVAC market. The Companys
principal products include well water accumulators, hot water expansion
controls, water treatment products, indirect-fired water heaters and
returnable and non-returnable pressure-rated cylinders used primarily to
store, transport and dispense refrigerant, heating and cooking gases.
Many of these products are based on a technology originated and developed
by the Company, involving a pre-pressurized vessel with an internal
diaphragm to handle fluids under pressure.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company was incorporated in Rhode Island in 1973, and is the
successor of a predecessor Rhode Island corporation which was
incorporated in 1946. On November 12, 1996, as a result of a merger
agreement with AMTROL Holdings Inc. and its wholly owned subsidiary,
AMTROL Acquisition Inc., the Company became a wholly-owned subsidiary of
AMTROL Holdings Inc., a Delaware corporation controlled by The Cypress
Group L.L.C. (Cypress). The Companys principal executive offices are
located at 1400 Division Road, West Warwick, Rhode Island 02893
(telephone number: (401) 884-6300).                                                                                                                                                              




Operations



| |  | AMTROL is a market leader in the manufacture of its principal products
and a significant participant in certain European, Middle Eastern,
African and Asian cylinder markets. The Companys prominence is
attributable to the strength of its brand names, product breadth, quality
and innovation, as well as its marketing, distribution and manufacturing
expertise. In addition, AMTROLs principal markets are highly replacement
oriented, with more than 50% of the Companys core business coming from
replacement sales. Sales can be affected by extreme weather conditions,
as well as significant changes in economic circumstances.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | One of the Companys strengths is its brand names, which are among the
most widely recognized in its markets. For example, the Companys
EXTROL® brand is widely recognized by customers as the leading hot water
expansion control tank. Other well-known brand names of the Company
include Well-X-Trol®, Therm-X-Trol®, Hot Water Maker®, CHAMPION® and
Water Worker®. The Company is a recognized technology leader in
virtually all of its core product lines. In fact, many of the Companys
major product lines are considered the industry benchmark, a key
strategic marketing advantage.                                              
|
| |  | During its 56-year history, AMTROL has established a strong partnership
with wholesalers, supporting a broad distribution network serving
approximately 2,000 customers throughout North America. The Companys
strong brand recognition and reputation for quality ensure that nearly
every significant plumbing, pump specialty and HVAC wholesaler carries at
least one line of its products. This facilitates new product
introduction, effectively pulling the Companys new products through
its distribution                                                                                                                           

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| |  | system. The Company also offers a broad range of products, which allows
the Companys customers to consolidate their suppliers and to purchase
and manage inventory more efficiently. These factors have established
AMTROLs products as preferred brands and allow the Company to realize
premium pricing on most of its premium branded products.                                                                                                                                                                                                                                                                                                                                                                              
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | AMTROL ALFA Metalomecânica, S.A. (AMTROL ALFA), located in Guimaraes,
Portugal, is Europes largest manufacturer of reusable steel gas
cylinders, distributed worldwide and used principally for the storage of
cooking and heating gases. AMTROL ALFA also produces non-returnable gas
cylinders supplied to European and Asian customers which are used
principally for the storage of refrigerant gases. AMTROL ALFAs sales
presence within the United States continues to increase as well. AMTROL
ALFA provides the Company with the potential for a low-cost international
manufacturing base for all of the Companys container products and is an
important source of supply for the Companys international customers.
|
| |  | AMTROL NOVA GmbH & Co. K.G. (AMTROL NOVA), located in Donaueschingen,
Germany, manufactures high-end residential and commercial water heaters
which are marketed primarily in Germany, Switzerland and Austria.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | AMTROL Poland Sp z.o.o. (AMTROL Poland), located in Swarzedz, Poland
refurbishes returnable gas cylinders primarily for the Polish market.
AMTROL Poland also provides AMTROL with a favorable manufacturing cost
structure and proximity to gas cylinder markets in eastern Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Net sales in geographic regions outside of the United States and Canada,
primarily Europe, the Middle East, Africa and the Far East, accounted
for 32.7%, 31.4% and 32.2% of the Companys total net sales in fiscal
years 1999, 2000 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Company continues to review potential acquisitions that may represent
good strategic fits with the Companys lines of business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               




Products And Markets



| |  | HVAC Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |  | The Companys sales to selected sectors of the HVAC market include
products such as expansion accumulators, water heaters and pressure-rated
cylinders for heating and refrigerant gases. The Companys residential
HVAC products include expansion vessels for heated water, potable water
heaters and other accessories used in residential HVAC systems. The
Companys commercial HVAC products are substantially identical in
function to those used in residential applications, but may be modified
for design codes and the higher operating pressures of larger systems.
The Companys pressure-rated cylinders for refrigerant gases are used
mainly in the storage, transportation and dispensing of gases used
principally in air conditioning and refrigeration systems. In addition,
the AMTROL-ALFA facility produces returnable pressure-rated cylinders for
storing gas used in residential and commercial heating and cooking
applications.

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| |  | EXTROLs®.The EXTROL® expansion accumulators, the first of the Companys
products for handling fluid under pressure, redefined the standards for
controlling the expansion of water in hydronic heating systems. Earlier
systems consisted simply of a vessel containing air, resulting in
excessive pressure and corrosion. The Company developed a technology
which uses a flexible diaphragm inside a pre-pressurized vessel to
maintain the separation of air and water and has applied this technology
in other HVAC and water system products. This technology controls
pressure in the heating system and minimizes problems related to hot
water expansion by allowing the volume of water to increase as the
temperature of the water increases within a closed system, thereby
substantially reducing operating problems.                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Therm-X-Trols®.Therm-X-Trols® accumulate expanded hot water from
potable water heaters where flow back into the public water supply is
prohibited due to the presence of backflow prevention devices. In
response to the Clean Water Act of 1984, certain jurisdictions
established local codes to require owners of commercial and residential
buildings to install backflow prevention devices in order to prevent the
contamination of the public water supply. Local codes adopted by
organizations that set standards for most of the United States also
require a separate device to handle the expanded water and prevent it
from flowing back into the public water supply. The principal
alternatives are relief valves, which permit water to drain inside the
building, and thermal expansion accumulators, such as the Therm-X-Trol®,
which capture the water. Therm-X-Trol® satisfies these code
requirements, as well as the codes of certain localities that
specifically require a thermal expansion accumulator. Additionally,
certain domestic water heater manufacturers specify that their warranties
are void if thermal expansion accumulators are not used in conjunction
with their products where backflow prevention devices are installed.
|
| |  | Indirect-Fired Water Heaters.In response to market demands for both an
abundant supply of hot water and energy conservation, the Company has
introduced a line of indirect-fired residential and commercial water
heaters, which it manufactures and distributes under the brand name
Boiler Mate. Used in conjunction with a new or existing boiler installed
to heat living and work areas, these water heaters offer an alternative
to conventional gas and electric potable water heaters and tankless
coils. Hot water is generated through the use of heat exchangers and
circulators which circulate heated water from the boiler through a coil
in the core of the water heaters reservoir. The Boiler Mate Classic
Series, available in 26 and 41 gallon models, is sold primarily for
residential applications. The Boiler Mate Premier Series, a line of
stainless steel models, offers sizes ranging from 60 to 120 gallons for
light commercial applications and residential customers who require large
amounts of hot water and rapid recovery time.                                                                                                                                                                                              
|
| |  | Pressure-Rated Cylinders.The AMTROL ALFA subsidiary produces and
distributes reusable liquid propane gas (LPG) cylinders and reusable
and non-returnable refrigerant cylinders. AMTROL ALFA is the largest
producer of reusable steel gas cylinders in Europe. Reusable LPG
cylinders are typically purchased by major gas companies or their
distributors who fill the cylinders for customers who use the gas for
heating and cooking in residential and commercial applications. In 1998,
the Company transferred to AMTROL ALFA a non-returnable cylinder
production line previously                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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| |  | located in
Singapore and began supplying its European and Asian non-returnable gas
cylinder customers from AMTROL ALFA. The Company is one of the worlds
two largest manufacturers of non-returnable pressure-rated cylinders used
in the storage, transport and dispensing of refrigerant gases for air
conditioning and refrigeration systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In 1999, the Company established AMTROL Poland which refurbishes
returnable gas cylinders principally for the Polish market. The Company
believes this market offers many substantial growth opportunities for its
products. In addition, through the establishment of a cylinder
manufacturing platform in Poland, the Company anticipates supporting
opportunities that exist in Eastern Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Water Systems Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | AMTROLs sales of its water systems products consist primarily of water
accumulators for residential and commercial well water systems and
products for residential water softening and purification.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Well Water Systems.The Company produces and sells well water
accumulators for both residential and commercial applications under the
brand names Well-X-Trol® Professional® and CHAMPION®, as well as under
several other brand and private label programs. Virtually all of the
water accumulators sold by the Company incorporate an internally mounted
rubber diaphragm that seals an air charge and allows pressure to increase
as water fills the plastic-lined vessel. This design serves to control
pressure while maintaining the separation of air and water in the vessel,
thereby eliminating water logging (absorption of air into water) as well
as reducing wear on switches, pump motors and other system components
caused by more frequent on/off cycling. A typical well water system
consists of a submersible or jet pump located in the well that pumps
water to an AMTROL
well water accumulator.
|
| |  | The well water accumulator is connected to the plumbing system in order
to provide water on demand within a specific range of pressure as
controlled by a pressure switch. As the water level and pressure in the
vessel decreases, the diaphragm relaxes and the pressure switch causes
the pump to cycle on until a certain pressure is achieved in the system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Water Treatment/Filtration Products.The Company offers a range of
products to meet increasing global demand for improved water quality and
water pressure. The Company manufactures and markets water softeners
under the Water Soft brand. Other products such as reverse osmosis
accumulators and related systems distributed by the Company can improve
the quality of both municipal-supplied water and well water. The Company
also manufactures and markets products under the brand name AMTROL
Pressuriser® that boosts water pressure where available pressure is not
adequate.                                                                                                                                                                                                                                                                                                                              




Distribution and Marketing



| |  | The Companys principal channel of distribution is plumbing, heating and
pump specialty wholesalers. The Company maintains its presence in the
United States and Canadian wholesale markets through a network of
approximately 45 independent manufacturers
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| |  | representatives arranging sales on a commission basis, as well as
approximately eight salaried direct sales professionals. To service its
customers with greater efficiency, the Company has streamlined its
representative network and, through consolidation of multiple lines of
business, has brought a broader range of products to its wholesalers.
The Company also provides certain of its products to the rapidly growing
retail channel through a separate sales force.                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At its Education Center, which is an integral part of the Companys
marketing organization, and at Company-sponsored seminars throughout the
United States and selected international locations, the Company provides
education and training to wholesalers, contractors and engineers,
independent sales representatives and their employees to assist them in
understanding the technical aspects of their respective customers
requirements and the Companys product lines. As the Company educates
contractors and engineers about the benefits of the Companys products,
its products are more effectively pulled through its distribution
system.
|
| |  | Non-returnable refrigerant pressure-rated cylinders are sold to major
chemical companies, which produce and package refrigerant gases, and to
independent contractors that purchase bulk refrigerants and fill the
cylinders. The Companys major customers for reusable refrigerant gas
cylinders are wholesale distributors who sell the products to service
providers and refrigerant recovery equipment manufacturers. AMTROL ALFAs
major customers for reusable LPG cylinders are major European gas
companies or their distributors.                                                                                                                 
|
| |  | With the exception of one cylinder customer to whom global sales were
approximately 7.4% of total consolidated net sales, no individual
customer represented more than five percent of the Companys net sales in
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                     




Manufacturing, Raw Materials and Suppliers



| |  | The Company manufactures its water system and HVAC products
primarily at its own facilities. Many of its products depend on the
Companys expertise in pressure vessel construction. The Company takes
advantage of the material economies and precision inherent in deep-draw
stamping technology to manufacture products of superior performance and
life.                                                                                                                                                                                                                                                                                                          
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During 2001, the Company significantly reduced its manufacturing costs
with three primary initiatives. First, plant safety performance
continued to show substantial year- to-year improvement resulting from a
safety overhaul in 1999. Records indicate that the Company enjoyed its
best safety performance in its history. Second, quality metrics
continued to reflect the strides made in reducing costs. Scrap and
rework numbers improved by over 30% in 2001. Lastly, delivery
performance hit new highs in 2001. This was even more significant given
the 20% reduction in stated lead times to the customer base instituted in
the second half of the year.
|
| |  | The Companys production system is based on proven world-class
manufacturing practices, and all components of this platform receive
continuous updating and review for effectiveness. Principal building
blocks of the Companys production system include                                                                                                                                                                                                                                                                                                                                                                                                            

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| |  | a visual factory philosophy, waste elimination through the Kaizen process
improvement methodology, a formal corrective action response system,
mistake-proofing and automatic source inspection, formal variation
reduction processes, total preventive maintenance and the promotion of
one-piece flow.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In 2001, AMTROL continued to refine and strengthen its manufacturing
platform through intensified training and implementation of the Kaizen
methodology in order to garner the maximum amount of efficiencies
inherent in one-piece flow and waste elimination. In addition, several
capital equipment upgrades took place in the Water Systems product line
that improved yield and reduced dependency on overtime.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In 2001, most raw material prices in North America were flat to
declining. It is anticipated that major commodity purchases in 2002 will
reflect price reductions. This includes major categories such as: steel,
rubber, corrugate, paint, copper, electricity, natural gas, and freight.
Furthermore, it is expected that the Companys recent efforts to optimize
material utilization and to develop the supply base will generate
additional savings. In addition, the Company has embarked on a program
to source various castings, valves, and machined parts from Asia, which
should favorably impact costs in the second half of 2002. Finally, the
Company anticipates that it will be able to purchase all of the
components it requires without disruption. The Company also believes that
its relationships with its suppliers are good.
|
| |  | On March 5, 2002, the United States government imposed tariffs and quotas
on a wide range of steel imports for a three-year period. Many of the
Companys products are made from steel or contain steel parts. While the
Company has certain purchase orders in place which set the price of steel
purchases, not all purchases are covered by purchase orders and the
purchase orders do not extend through the period the quotas and tariffs
are imposed. Should price increases result from the imposition of these
quotas and tariffs, net income and cash flows of the Company could
decline.                                                                                                                                                                                                                                                   
|
| |  | The condition of the Companys facilities and capital equipment is
considered good, and capital expenditures made during 2001 are expected
to yield further plant efficiencies. As a result, the Company
anticipates no capacity restraints in 2002. Improved yields and reduced
labor content are also anticipated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Company continued to leverage its Enterprise Resource Planning
(ERP) investment made in 2000 & 1999 to improve business process
development. As a result, working capital turns and inventory accuracy
continued to improve. Several supply chain initiatives including Vendor
Managed Inventory and Electronic Data Imaging will be expanded in
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Companys quality systems successfully maintained their ISO 9001
certification, the most complete certification in the ISO 9000 Series
from the International Organization for Standardization (ISO). ISO
certification requires periodic audits of the Companys systems for
product design, development, production, installation and servicing, and
has become the international standard of quality required for
manufacturers serving the European Economic Community, Southeast Asia,
the Middle East and Latin America. The three principal North American
facilities plan to seek the newly revised ISO9001/2000 certification by
December 2002, ahead of the revised standard effective date of December
2003.                                                                                                                        

8



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##### Table of Contents






Seasonality and Backlog



| |  | Although the Companys sales fluctuate with general economic activity,
the effect of significant economic volatility is mitigated by the fact
that many of the Companys markets are highly replacement oriented.
While sales of certain of its products are seasonal in nature, the
Companys overall business is not highly seasonal. Due to the generally
short lead time of its orders, the Company historically has not carried
any material backlog.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Patents, Trademarks And Licenses



| |  | While the Company owns a number of patents, the Company believes that its
position in its markets depends primarily on factors such as
manufacturing expertise, technological leadership, superior service and
quality and strong brand name recognition, rather than on patent
protection. The Company believes that foreign and domestic competitors
have been unable to match the quality of the Companys branded products.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company also holds a number of registered and unregistered trademarks
for its products. The Company believes the following registered
trademarks, which appear on its products and are widely recognized in its
markets, are among those of strategic importance to its business:
Well-X-Trol®, Therm-X-Trol®, EXTROL®, Hot Water Maker®, Boiler Mate,
CHAMPION® and Water Worker®.                                       




Competition



| |  | The Company is experiencing increasing competition from a number of
foreign and U.S. competitors in each of its markets. AMTROL and its
competitors in the water systems products and HVAC markets compete
principally on the basis of technology, quality, service and price.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Employees



| |  | As of December 31, 2001, the Company had 577 employees in the United
States, none of whom were represented by collective bargaining units. In
addition, the Company had 997 employees in its international operations.
Some of the Companys international employees are represented by unions.
The Company considers relations with its employees to be good.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Environmental Matters



| |  | Some of the Companys operations generate or have in the past generated
waste materials that are regulated under environmental laws. In the
past, certain of the Companys operations have been named parties in
litigation associated with off-site hazardous waste treatment and
disposal. Based upon the Companys experience in matters that have been
resolved and the amount of hazardous waste shipped to off-site disposal
facilities, the Company believes that any share of costs attributable to
it will not be material should any litigation arise or any claims be made
in the future. However, there can be no assurance that any liability
arising from, for example, contamination at facilities the Company owns
or operates or formerly owned or operated (or an entity or business the
Company has
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9



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##### Table of Contents





| |  | acquired or disposed of), or locations at which waste or contaminants
generated by the Company have been deposited (or deposited by an entity
or business the Company has acquired or disposed of) will not arise or be
asserted against the Company or entities for which the Company may be
responsible in a manner that could materially and adversely affect the
Company.                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company monitors and reviews its procedures and policies for
compliance with environmental laws. Based upon the Companys experience
to date, the Company operates in substantial compliance with
environmental laws, and the cost of compliance with existing regulations
is not expected to have a material adverse effect on the Companys
results of operations, financial condition or competitive position.
However, future events, including changes in existing laws and
regulations or enforcement policies, may give rise to additional
compliance costs which could have a material adverse effect on the
Companys results of operations, financial condition or competitive
position.




ITEM 2.     PROPERTIES



| |  | The following table sets forth information regarding the Companys
principal properties each of which is owned by the Company unless
otherwise indicated:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                |         |               |  |                                                            
|----------------------- |  | -------------- | ------- | ------------- |  | -----------------------------------------------------------
|Location                |  | Square Footage |         | Principal Use
|                        |  | (approximate) 
|West Warwick, RI        |  |                | 270,000 |               |  | Corporate Headquarters,
Manufacturing, and
Education Center
|                       
|                       
|                       
|                       
|Guimaraes, Portugal     |  |                | 196,000 |               |  | Manufacturing                                              
|                       
|                       
|                       
|                       
|North Kingstown, RI (a) |  |                | 206,000 |               |  | Distribution Center                                        
|                       
|                       
|                       
|                       
|Donaueschingen, Germany |  |                | 70,000  |               |  | Manufacturing and Distribution                             
|                       
|                       
|                       
|                       
|Paducah, KY             |  |                | 46,300  |               |  | Manufacturing                                              
|                       
|                       
|                       
|                       
|Mansfield, OH (a)       |  |                | 45,000  |               |  | Manufacturing and Distribution Center                      
|                       
|                       
|                       
|                       
|Baltimore, MD           |  |                | 37,000  |               |  | Manufacturing                                              
|                       
|                       
|                       
|                       
|Swarzedz, Poland (a)    |  |                | 29,000  |               |  | Manufacturing                                              
|                       
|                       
|                       
|                       
|Kitchener, Ontario(a)   |  |                | 18,400  |               |  | Sales Office and Distribution                              
|                        |  |                |         |               |  |                                                            
|Total                   |  |                | 917,700 |               |  |                                                            
|                        |  |                |         |               |  |                                                            



---

|(a) |  | Leased facilities
|--- |  | -----------------



| |  | The Company believes that its properties and equipment generally are well
maintained, in good operating condition and adequate for its present
needs. The Company regularly evaluates its manufacturing requirements
and believes that it has sufficient capacity to meet its current and
anticipated future needs. The inability to renew any short-term real
property lease would not have a material adverse effect on the Companys
results of operations, financial condition or competitive position.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



---



##### Table of Contents






ITEM 3.     LEGAL PROCEEDINGS



| |  | From time to time, the Company is named as a defendant in legal
actions. These include commercial disputes, agency proceedings and
product liability, personal injury and other claims. However, management
believes, after review of insurance coverage and consultation with legal
counsel, that the ultimate resolution of the pending legal actions to
which it is a party will not have a material adverse effect on the
Companys results of operations or financial condition.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



| |  | Not applicable.
| |  | ---------------




PART II




ITEM 5.     MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



| |  | All of the common stock of the Company is owned by AMTROL Holdings
Inc. (Holdings) and no trading market exists for the stock. All
of the
common stock of Holdings is held by affiliates of Cypress and
certain officers, directors and employees of the Company, and
likewise there is no trading market for Holdings stock. For more
information, see Item 12, Security Ownership of Certain Beneficial
Owners and Management.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11



---



##### Table of Contents






ITEM 6.     SELECTED FINANCIAL DATA

The selected consolidated financial data presented below for and as of each of
the years and periods in the five-calendar-year period ended December 31, 2001
have been derived from the Consolidated Financial Statements of the Company,
including the related notes thereto, which have been audited by Arthur Andersen
LLP, independent certified public accountants. The information set forth below
should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and with the Consolidated
Financial Statements of the Company, including the related notes thereto,
appearing elsewhere in this Form 10-K.

|                                    |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------- | --------------------------------------------------------- |  | ----------------------- | ------- | ------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |                                                           |  | Year Ended December 31,
|                                    |                                                           |  |                        
|                                    |                                                           |  | 1997                    |         | 1998(b) |  | 1999 |         | 2000 |  | 2001
|                                    |                                                           |  |                         |         |         |  |      |         |      |  |     
|                                    |                                                           |  | (In Thousands)         
|Statement of Operations Data:       |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                                   
|                                   
|                                   
|                                   
|                                    | Net sales                                                 |  | $                       | 186,422 |         |  | $    | 212,890 |      |  | $    | 222,053 |   |  | $ | 197,472 |   |  | $ | 182,325 |  
|                                   
|                                   
|                                   
|                                   
|                                    | Cost of goods sold                                        |  |                         | 141,170 |         |  |      | 169,355 |      |  |      | 164,617 |   |  |   | 151,483 |   |  |   | 141,278 |  
|                                   
|                                   
|                                   
|                                   
|                                    | Provision for abnormal warranty costs                     |  |                         |        |         |  |      | 4,500   |      |  |      |        |   |  |   |        |   |  |   |        |  
|                                    |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Total cost of goods sold                                  |  |                         | 141,170 |         |  |      | 173,855 |      |  |      | 164,617 |   |  |   | 151,483 |   |  |   | 141,278 |  
|                                   
|                                   
|                                   
|                                   
|                                    | Gross profit                                              |  |                         | 45,252  |         |  |      | 39,035  |      |  |      | 57,436  |   |  |   | 45,989  |   |  |   | 41,047  |  
|                                   
|                                   
|                                   
|                                   
|                                    | Selling, general and
administrative expenses              |  |                         | 25,723  |         |  |      | 27,827  |      |  |      | 28,492  |   |  |   | 25,821  |   |  |   | 27,878  |  
|                                   
|                                   
|                                   
|                                   
|                                    | Plant closing and reorganization costs                    |  |                         | 5,500   |         |  |      | 4,450   |      |  |      |        |   |  |   |        |   |  |   |        |  
|                                   
|                                   
|                                   
|                                   
|                                    | Management restructuring                                  |  |                         |        |         |  |      | 3,693   |      |  |      |        |   |  |   |        |   |  |   |        |  
|                                   
|                                   
|                                   
|                                   
|                                    | Amortization of goodwill                                  |  |                         | 3,995   |         |  |      | 4,446   |      |  |      | 4,463   |   |  |   | 4,463   |   |  |   | 4,451   |  
|                                    |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Income (loss) from operations                             |  |                         | 10,034  |         |  |      | (1,381  | )    |  |      | 24,481  |   |  |   | 15,705  |   |  |   | 8,718   |  
|                                   
|                                   
|                                   
|                                   
|                                    | Interest (expense), net                                   |  |                         | (18,256 | )       |  |      | (20,344 | )    |  |      | (19,083 | ) |  |   | (19,070 | ) |  |   | (19,101 | )
|                                   
|                                   
|                                   
|                                   
|                                    | License and distributorship fees                          |  |                         | 245     |         |  |      | 242     |      |  |      | 234     |   |  |   | 210     |   |  |   | 291     |  
|                                   
|                                   
|                                   
|                                   
|                                    | Other income (expense), net                               |  |                         | 299     |         |  |      | 1,384   |      |  |      | 353     |   |  |   | 1,713   |   |  |   | 95      |  
|                                    |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Income (loss) before provision
(benefit) for income taxes |  |                         | (7,678  | )       |  |      | (20,099 | )    |  |      | 5,985   |   |  |   | (1,442  | ) |  |   | (9,997  | )
|                                   
|                                   
|                                   
|                                   
|                                    | Provision (benefit) for income taxes                      |  |                         | (30     | )       |  |      | (6,728  | )    |  |      | 4,125   |   |  |   | 2,704   |   |  |   | (1,026  | )
|                                    |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Income (loss) before extraordinary item                   |  |                         | (7,648  | )       |  |      | (13,371 | )    |  |      | 1,860   |   |  |   | (4,146  | ) |  |   | (8,971  | )
|                                   
|                                   
|                                   
|                                   
|                                    | (Loss) on extraordinary item, net of tax                  |  |                         |        |         |  |      |        |      |  |      |        |   |  |   |        |   |  |   | (444    | )
|                                    |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Net income (loss)                                         |  | $                       | (7,648  | )       |  | $    | (13,371 | )    |  | $    | 1,860   |   |  | $ | (4,146  | ) |  | $ | (9,415  | )
|                                    |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Other Data:                         |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                                   
|                                   
|                                   
|                                   
|                                    | Depreciation and amortization                             |  | $                       | 11,541  |         |  | $    | 13,147  |      |  | $    | 14,003  |   |  | $ | 14,005  |   |  | $ | 13,882  |  
|                                   
|                                   
|                                   
|                                   
|                                    | Capital expenditures                                      |  |                         | 8,489   |         |  |      | 9,858   |      |  |      | 5,798   |   |  |   | 8,375   |   |  |   | 4,199   |  
|                                   
|                                   
|                                   
|                                   
|                                    | EBITDA (a)                                                |  |                         | 26,887  |         |  |      | 12,454  |      |  |      | 38,346  |   |  |   | 29,963  |   |  |   | 21,972  |  
|                                   
|                                   
|                                   
|                                   
|Balance Sheet Data (at period end): |                                                           |  |                         |         |         |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                                   
|                                   
|                                   
|                                   
|                                    | Working capital                                           |  | $                       | 22,675  |         |  | $    | 6,642   |      |  | $    | 9,001   |   |  | $ | 5,101   |   |  | $ | 8,602   |  
|                                   
|                                   
|                                   
|                                   
|                                    | Total assets                                              |  |                         | 291,945 |         |  |      | 300,667 |      |  |      | 281,745 |   |  |   | 271,104 |   |  |   | 264,455 |  
|                                   
|                                   
|                                   
|                                   
|                                    | Long-term debt, less current maturities                   |  |                         | 184,164 |         |  |      | 173,023 |      |  |      | 163,385 |   |  |   | 159,469 |   |  |   | 157,511 |  
|                                   
|                                   
|                                   
|                                   
|                                    | Shareholders equity                                      |  |                         | 58,049  |         |  |      | 65,948  |      |  |      | 65,303  |   |  |   | 59,872  |   |  |   | 58,219  |  



---

|(a) |  | EBITDA represents income (loss) from operations before plant
closing charges, depreciation and amortization. EBITDA is frequently
considered by readers of financial statements and therefore the Company
believes that inclusion of EBITDA is useful supplemental information. The
method of calculating EBITDA is consistent with the Companys Loan and
Security Agreement and Senior Subordinated Notes Agreement. However,
EBITDA is not a measure of true cash flow since it does not incorporate
changes of other assets and liabilities that may generate or require cash.
EBITDA is not a generally accepted accounting measure.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Adjusted to reflect a change in the method of determining inventory cost
from the LIFO method to the FIFO method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

12



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##### Table of Contents






ITEM 7.     MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                   OF OPERATIONS



| |  | This section should be read in conjunction with the Consolidated Financial
Statements of the Company included elsewhere herein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company and its subsidiaries and their representatives may from time
to time make written or oral statements, including statements contained
in AMTROLs filings with the Securities and Exchange Commission (SEC)
and in its reporting to customers, which constitute or contain
forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995 or the SEC in its rules,
regulations and releases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | All statements other than statements of historical fact included in this
Form 10-K and elsewhere relating to the Companys financial position,
strategic initiatives and statements addressing industry developments are
forward-looking statements. When incorporated in this discussion, the
words expect(s), feel(s), believe(s), anticipate(s) and similar
expressions are intended to identify some of these forward-looking
statements. Forward looking statements include those containing these
phrases but also any other statements that are not references to
historical fact. Although the Company believes that the expectations
reflected in such forward-looking statements are expressed in good faith
and are believed to have a reasonable basis, there can be no assurance
that such expectations or beliefs will result or be achieved or
accomplished. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
following are some of the important factors that can vary or change or
involve substantial risk and cause actual results to differ materially
from such expectations: the Companys ability to successfully implement
its business strategy; the availability and cost of raw materials;
changes in domestic or foreign government regulation or enforcement
policies, particularly related to refrigerant gases or cylinders and
building and energy efficiency requirements or restrictions or
limitations or general reduction in the use of domestic wells;
significant weather conditions adverse to the Companys business;
development of competing technologies; acceptance of the Companys
existing and planned new products in international markets; competition
in the Companys markets, particularly price competition; the rate of
growth of developing economies and demand for the Companys products; the
ultimate cost of future warranty and other claims relating to the
Companys products and business; whether the Company succeeds in
acquiring new businesses; availability of capital; foreign exchange
rates; increases in interest rates; the business abilities and judgment
of personnel; and general economic, financial and business conditions,
both domestically and internationally.

Critical Accounting Policies



| |  | In December 2001, the SEC requested that all registrants list their three
to five most critical accounting policies in the MD&A per Financial
Reporting Release No. 60. The SEC indicated that a critical accounting
policy is one which is both important to the portrayal of the Companys
financial condition and results of operations and requires managements
most difficult subjective or complex judgments, often as a need to make
estimates about the effect of matters that are inherently uncertain. The
Company believes that the following accounting policies fit this
definition.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13



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##### Table of Contents





| |  | Revenue Recognition.The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition in
financial statements as amended by SAB No. 101A and SAB
No. 101B.In
accordance with SAB No. 101, the Company recognizes revenue only when
there is a valid contract or purchase order which includes a fixed price,
the goods have been delivered in accordance with the shipping terms; and
there is an expectation that the collection of the revenue is reasonably
assured. Determination of the criteria are based upon managements
judgments regarding the fixed nature of the price and the ability to
collect revenue.                                                                                                                                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Long-Lived Assets.AMTROL periodically evaluates its long-lived assets
for events or changes in circumstances that might indicate the carrying
amount of the assets may not be recoverable in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121. In assessing the
recoverability of goodwill, AMTROL must make assumptions regarding
estimated undiscounted future cash flows. The amount of impairment, if
any, would be measured based on the fair value of the impaired assets.
At December 31, 2001, no such impairment exists. Effective for the
Companys 2002 fiscal year, AMTROL will account for its long-lived
assets, other than goodwill, under SFAS No. 144. This statement will
provide for use of the accounting model for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired.
For discussions involving accounting for goodwill, see SFAS No. 142
description.                                     
|
| |  | In July 2001, the FASB released SFAS No. 141, Business Combinationsand
SFAS No. 142, Goodwill and Other Intangible Assets.SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. As a result of SFAS No. 142, amortization of goodwill to
earnings will cease and instead, the carrying value of goodwill will be
evaluated for impairment on at least an annual basis. The Company will
comply with SFAS No. 141 for any future business combinations and will
adopt SFAS No. 142 effective January 1, 2002. The Company has until June
30, 2002 to determine the impact of adopting SFAS No. 142 which may
require restatement of prior quarters. Amortization of goodwill for the
periods ended December 31, 1999, 2000 and 2001 was $4.5 million, $4.5
million and $4.5 million, respectively.
|
| |  | Warranty.The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages
in extensive product quality programs and processes, including monitoring
and evaluating quality of component parts, AMTROLs warranty obligation
is affected by product failure rates, material usage and labor costs
incurred in correcting a product failure. Should actual product failure
rates differ from managements estimates, revisions to the estimated
warranty reserve may be required.                                                                                                                                                                                                                                                                                                                                                                                                                                             

Results of Operations



| |  | The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Companys
statement of operations:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



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##### Table of Contents



|                                             |  |                        |       |      |  |      |       |   |  |  |       |  
|-------------------------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                             |  | Year Ended December 31
|                                             |  |                       
|                                             |  | 1999                   |       | 2000 |  | 2001
|                                             |  |                        |       |      |  |     
|Net sales                                    |  |                        | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|                                            
|                                            
|                                            
|                                            
|Cost of goods sold                           |  |                        | 74.1  |      |  |      | 76.7  |   |  |  | 77.5  |  
|                                             |  |                        |       |      |  |      |       |   |  |  |       |  
|Gross profit                                 |  |                        | 25.9  |      |  |      | 23.3  |   |  |  | 22.5  |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |                        | 12.9  |      |  |      | 13.1  |   |  |  | 15.3  |  
|                                            
|                                            
|                                            
|                                            
|Amortization of goodwill                     |  |                        | 2.0   |      |  |      | 2.2   |   |  |  | 2.4   |  
|                                             |  |                        |       |      |  |      |       |   |  |  |       |  
|Income from operations                       |  |                        | 11.0  |      |  |      | 8.0   |   |  |  | 4.8   |  
|                                            
|                                            
|                                            
|                                            
|Interest expense                             |  |                        | (8.6  | )    |  |      | (9.7  | ) |  |  | (10.5 | )
|                                            
|                                            
|                                            
|                                            
|Other income, net                            |  |                        | 0.3   |      |  |      | 1.0   |   |  |  | 0.2   |  
|                                             |  |                        |       |      |  |      |       |   |  |  |       |  
|Income (loss) before income taxes            |  |                        | 2.7   |      |  |      | (0.7  | ) |  |  | (5.5  | )
|                                            
|                                            
|                                            
|                                            
|Provision (benefit) for income taxes         |  |                        | 1.9   |      |  |      | 1.4   |   |  |  | (0.5  | )
|                                            
|                                            
|                                            
|                                            
|Income (loss) before extraordinary item      |  |                        | 0.8   |      |  |      | (2.1  | ) |  |  | (5.0  | )
|                                            
|                                            
|                                            
|                                            
|(Loss) on extraordinary item, net            |  |                        |      |      |  |      |      |   |  |  | (0.2  | )
|                                             |  |                        |       |      |  |      |       |   |  |  |       |  
|Net income (loss)                            |  |                        | 0.8   |      |  |      | (2.1  | ) |  |  | (5.2  | )
|                                             |  |                        |       |      |  |      |       |   |  |  |       |  

Fiscal Year Ended December 31, 2001 Compared to Fiscal Year Ended December 31,
2000.



| |  | Net Sales.Net sales in 2001 decreased $15.2 million or 7.7% to $182.3
million from $197.5 million in 2000. In North America, net sales
decreased $11.9 million or 8.7% as compared to 2000 due principally to a
decline in volume attributable to a continuing weakness in the North
American economy, pricing pressures and shifts in product mix. Net
sales in Europe decreased $3.3 million or 5.3% as compared to 2000 due
principally to the weakening of the Euro against the U.S. dollar. If the
value of the Euro had remained at the average level of 2000, reported net
sales in Europe for 2001 would have decreased $1.5 million or 2.4% from
2000.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Gross Profit.Gross profit decreased approximately $5.0 million in 2001
to $41.0 million from $46.0 million in 2000. As a percentage of net
sales, gross profit in 2001 decreased to 22.5% from 23.3% in 2000.
Several factors contributed to the margin decrease, including lower
volume, lower selling prices and shifts in product mix. Partially
offsetting these decreases were the favorable results of continuing cost
reduction efforts and improvements in labor productivity at all of the
Companys manufacturing locations.                                                                                                                         
|
| |  | Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased $2.1 million or 8.0% in 2001 to $27.9
million from $25.8 million in 2000. The increase was principally due to
one-time marketing initiatives in the Companys principal North American
markets.                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Other Income, Net.Other income, net for 2001 was $0.1 million as
compared to 2000 of $1.7 million. The decrease of $1.6 million was
principally attributable to the sale of a parcel of land in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Income Taxes.Income tax expense decreased $3.7 million in 2001 as
compared to 2000 reflecting lower pre-tax earning levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

15



---



##### Table of Contents





| |  | Net Income (Loss).The net loss in 2001 of $9.4 million compares to a
net loss in 2000 of $4.1 million, an absolute change of $5.3 million.                                                                                                                                                                                                                                                                                                                                                                
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Earnings Before Interest Expense, Taxes, Depreciation and Amortization
(EBITDA).
EBITDA in 2001 was $22.0 million compared to $30.0 million in 2000, a
decrease of $8.0 million or 26.7%. The decline was the result of a
decline in net sales, higher selling, general and administrative expenses
mitigated by the favorable impacts of cost reduction efforts and improved
labor productivity. As a percentage of sales, EBITDA decreased three
percentage points, from 15.2% in 2000 to 12.1% in 2001.

Fiscal Year Ended December 31, 2000 Compared to Fiscal Year Ended December 31,
1999.



| |  | Net Sales.Net sales in 2000 decreased $24.6 million or 11.1% to $197.5
million from $222.1 million in 1999. In North America, net sales
decreased $14.1 million or 9.4% as compared to 1999 due principally to
increased competition and pricing pressures in the Companys Water
Systems markets and a generally weaker North American economy. Net sales
in Europe decreased $10.5 million or 14.4% as compared to 1999 due
principally to the weakening of the Euro against the U.S. dollar. If the
value of the Euro had remained at the average level of 1999, reported net
sales for 2000 would have been $8.9 million higher.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Gross Profit.Gross profit decreased $11.4 million in 2000 to $46.0
million from $57.4 million in 1999. As a percentage of net sales, gross
profit in 2000 decreased to 23.3% from 25.9% in 1999. Several factors
contributed to the margin decrease, including lower volume, lower
selling prices, and an increase in certain material costs, most notably
steel costs in the Companys European operations. Partially offsetting
these increases were the favorable results of cost reduction efforts and
improvements in labor productivity at all of the Companys manufacturing
locations.                                      
|
| |  | Selling, General and Administrative Expenses.Selling, general and
administrative expenses decreased $2.7 million or 9.5% in 2000 to $25.8
million from $28.5 million in 1999. The decrease was attributable to
lower sales, cost-cutting efforts and substantially reduced accruals for
incentive compensation.                                                                                                                                                                                                                                                                                                                     
|
| |  | Other Income, Net.Other income, net for 2000 was $1.7 million as
compared to 1999 of $0.4 million. The increase of $1.3 million was
principally attributable to the sale of a parcel of land resulting in
pretax income of $1.1 million.                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Income Taxes.Income tax expense decreased $1.4 million in 2000 as
compared to 1999 reflecting lower pre-tax earning levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Net Income (Loss).The net loss in 2000 of $4.1 million compares to a
net income in 1999 of $1.9 million, an absolute change of $6.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Earnings Before Interest Expense, Taxes, Depreciation and Amortization
(EBITDA).
EBITDA in 2000 was $30.0 million compared to $38.3 million in 1999, a
decrease of $8.3 million or 21.7%. As a percentage of sales, EBITDA
decreased two percentage points, from 17.3% in 1999 to 15.2% in 2000.                                                                                                                                                                                                                                                                                                                                    

16



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##### Table of Contents



Liquidity and Capital Resources



| |  | The Company, on December 26, 2001 completed a refinancing of its senior
secured credit facility. In its place, the Company entered into two new
credit facilities: a $42.5 million senior first-priority secured credit
facility arranged by Foothill Capital Corporation (the Foothill
Facility) and a $25.0 million senior second-priority secured credit
facility with affiliates of The Cypress Group L.L.C. (the Cypress
Facility). Proceeds from the refinancing were used to repay in full
Amtrols existing credit facility and to pay fees and expenses related to
the refinancing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Foothill Facility consists of senior term loans (the Term Loans)
and a revolving credit facility (the Revolving Credit Facility). A
portion ($10.2 million) of the Term Loans (the Term Loan A) is the
lower of (a) $10.5 million and (b) the sum of (i) 80% of the net
liquidation percentage of eligible equipment located in North America and
(ii) 60% of the fair market value of real property located in North
America. $7.5 million of the term loans (the Term Loan B) was also
created. The Revolving Credit Facility is secured by North American
accounts receivable and inventories. Aggregate borrowings under the
Revolving Credit Facility are limited to the lesser of (a) $35.0 million
less the aggregate outstanding principal amount of the Term Loan A less
letter of credit usage, and (b) the borrowing base less letter of credit
usage. The Foothill Facility is secured by a lien on all of AMTROL's
personal property and assets. For a detailed description of the borrowing base see Section 2.1
of the Loan and Security Agreement (the Agreement) between the Company
and Foothill Capital Corporation dated December 26, 2001, which is
attached as Exhibit 10.12. At December 31, 2001, total availability and
aggregate borrowings under the Revolving Credit Facility were $11.8
million and $5.4 million, respectively.
|
| |  | Term Loan A has a five-year maturity with quarterly principal payments of
$426,757 commencing April 1, 2002. The outstanding unpaid principal
shall be due and payable on the date of termination of the Agreement,
whether by its terms, by prepayment, or by acceleration and bears
interest at LIBOR plus 3.5%. Term Loan B has a three-year maturity with
quarterly principal payments of $312,500 commencing April 1, 2002. The
outstanding unpaid principal shall be due and payable on the date of
termination of the Agreement, whether by its terms, by prepayment, or by
acceleration and bears interest at the greater of the Wells Fargo
Reference Rate (approximates the prime rate) plus 3.5% or 9.25%. The
Revolving Credit Facility has a five-year maturity. Amounts borrowed
under the Revolving Credit Facility may be repaid and reborrowed at any
time during the term of the Agreement and bear interest at LIBOR plus
2.5% for LIBOR based borrowings and the Wells Fargo Reference Rate plus
0.5% for non-LIBOR based borrowings. The Agreement contains certain
affirmative and negative covenants and restrictions. As of December 31,
2001, the Company was in compliance with the various covenants of the
Foothill Agreement.                                                                                                                
|
| |  | The Cypress Facility consists of a single $25.0 million term loan (the
Term Loan C). Term Loan C has a five-year maturity and bears
Pay-In-Kind (PIK) interest fixed at 12% per annum paid quarterly, which
at the lenders option can be paid in common stock of the Company. In
connection with the Cypress Facility, Amtrol Holdings, Inc., which wholly
owns AMTROL, has issued the lenders under the Cypress Facility 60,000
warrants to purchase approximately 5.2% of its common stock on a fully
diluted basis. The 60,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

17



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##### Table of Contents





| |  | warrants, which have an exercise price of $.01, were valued at
approximately $3.4 million using the Black-Scholes model. This amount
was recorded as a contra-liability against the Term Loan C debt and
included in the Companys equity section. The Company expects
that the effective interest rate associated with the Term Loan C will
be greater than 12% given the additional interest expense associated
with the warrants. For a detailed
description of the Cypress Facility, see the Cypress Loan and Security
Agreement (the Cypress Agreement) between the Company and affiliates of
the Cypress Group L.L.C. dated December 26, 2001, which is attached as
Exhibit 10.13. The Cypress Loan Agreement contains certain affirmative
and negative covenants and restrictions. As of December 31, 2001, the
Company was in compliance with the various covenants of the Cypress
Agreement.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In 2001, the Companys cash flow from operating activities was a deficit
of $2.7 million, a decrease of $8.0 million from 2000. The decrease was
principally the result of lower operating income and higher working
capital requirements. In addition to completing the refinancing of its
senior credit facility, the Company reduced capital expenditures in 2001
by $4.2 million as compared to 2000 and received the proceeds from the
purchase of $6.0 million of common stock by Cypress in August 2001. At
December 31, 2001, the Companys cash balance was $1.0 million versus $0.7 million at
December 31, 2000 and excess availability under the new Revolving Credit
Facility was $6.4 million.                                                                                                                                                                                           
|
| |  | The Companys operating working capital (defined as accounts receivable
and inventory, less accounts payable) increased approximately $3.1
million from $24.2 million at December 31, 2000 to $27.3 million at
December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Accounts receivable increased $0.9 million or 3.1% from $27.6 million at
December 31, 2000 to $28.5 million at December 31, 2001. The increase in
accounts receivable was the result of higher December 2001 versus December
2000 sales and slower customer payments, particularly in the Companys
European operations. However, the Company did not experience any
significant changes in credit terms, credit utilization or delinquency in
accounts receivable in 2001 as compared to 2000.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The Companys inventories decreased $0.7 million or 3.3% from $20.5
million at December 31, 2000 to $19.8 million at December 31, 2001. The
decrease is consistent with the Companys reduction in sales and efforts
to reduce inventories of low-volume products and maintain optimum levels
of high-volume products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Capital expenditures were $5.8 million, $8.4 million and $4.2
million for the years ended December 31, 1999, 2000 and 2001,
respectively. Substantially all of the expenditures in 2001 related to
ongoing maintenance and upgrading of the Companys manufacturing
technology at all of its production facilities. In 2000, $2.2 million
was used to acquire AMTROL Polands production line which was previously
leased, and $1.0 million was used to enhance and complete the
implementation of the Companys Enterprise Resource Planning System
(ERP) in North America and at AMTROL ALFA.                                                                                                                                                                                                                                                                                                      
|
| |  | On December 18, 2000, the Company sold a parcel of land totaling 11.5
acres adjacent to the Companys headquarters in West Warwick, Rhode
Island. The gross sale price of $2.1 million resulted in the Company
recording a net book pre-tax gain of $1.1 million. The net book pre-tax
gain was not included in the calculation of EBITDA for purposes of
covenant compliance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

18



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##### Table of Contents





| |  | In November 1996 the Company issued, under an Indenture, $115.0 million
of Senior Subordinated Notes due 2006 (the Notes). The Notes are
unsecured obligations of the Company. The Notes bear interest at the
rate of 10.625% per annum payable semi-annually on each June 30 and
December 31 commencing on June 30, 1997. The Notes are redeemable at the
option of the Company on or after December 31, 2001. From and after
December 31, 2001, the Notes will be subject to redemption at the option
of the Company, in whole or in part, at various redemption prices,
declining from 105.313% of the principal amount to par on and after
December 31, 2003. Upon a Change of Control (as defined in the
Indenture), each Note holder has the right to require the Company to repurchase such holders Notes at a purchase price of 101% of
the principal amount plus accrued interest. The Indenture contains
certain affirmative and negative covenants and restrictions. As of
December 31, 2001, the Company was in compliance with the various
covenants of the Indenture.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company intends to fund future working capital, capital expenditures
and debt service requirements through cash flows generated from
operations and borrowings through its Revolving Credit Facility.
Management believes that cash generated from operations, together with
borrowings available under the Revolving Credit Facility, will be
sufficient to meet the Companys working capital and capital expenditure
needs in the foreseeable future. The Company may consider other options
available to it in connection with funding future working capital and
capital expenditure needs, including the issuance of additional debt and
equity securities.                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The Company and/or affiliates of the Company, including entities related
to Cypress may, from time to time, depending on market conditions,
purchase the Senior Subordinated Notes previously issued by the Company
in the open market or by other means.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The Company will continue to selectively pursue strategic acquisitions,
such as the acquisitions of AMTROL ALFA and AMTROL NOVA. The Company
believes that strategic acquisitions, both domestic and international,
provide an effective means of increasing or establishing a market
presence in targeted markets and a means of identifying and introducing
new products and technologies in markets where it already has a strong
presence. The Company also believes that establishing local manufacturing
and distribution facilities in international markets significantly
enhances its ability to build strong customer relationships, understand
local product preferences and be price competitive.                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The Company believes that anticipated inflation rates will not have a
material adverse effect on its results of operations or financial
condition. However, there can be no assurance that sharply increasing
raw material or fuel costs will not adversely affect the Companys
financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement
of tangible long-lived assets and the associated retirement costs. SFAS
No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

19



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##### Table of Contents





| |  | reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with early adoption
permitted. The Company is currently assessing the impact, if any, of
adopting SFAS No. 143 on its consolidated financial statements.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK



| |  | The Company is exposed to market risk related to foreign currency
exchange rates and changes in interest rates, but the impact on 2001
operating results was not material and the expected impact on 2002
operating results is not anticipated to be material. The Company did not
use any material financial or other derivative instruments to hedge its
foreign currency exposures, which relate primarily to its operations in
Portugal and Germany. A significant portion of revenues from the
Companys Portuguese and German operations were denominated in Euros, and
when translated into U.S. dollars, can result in higher or lower earnings
due to currency fluctuations. Similarly, a significant portion of
revenues from the Companys Polish operations are denominated in Zlotys
which, when translated into U.S. dollars, can cause an increase or
decrease in earnings from currency fluctuations. For these operations,
management believes a hypothetical 10% fluctuation in the exchange rate
between these foreign currencies and the U.S. dollar would not have
a material impact on expected 2002 net income. The Company believes that
its cash flow exposure resulting from its net
foreign-currency-denominated asset positions in Portugal, Germany and
Poland is not material.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has one derivative contract consisting of an interest rate
swap contract and an interest rate cap (the Contract) outstanding as of
December 31, 2001, with an initial notional amount of $15 million,
decreasing on a consistent basis with repayment terms of the underlying
debt. Under this arrangement, which will mature on June 30, 2004, the
Company receives the 90-day LIBOR rate and pays a fixed rate of 5.85% for
the period from January 1, 2001 through maturity, unless LIBOR increases
to 7.1%. If LIBOR increases to 7.1%, then the Company continues to
receive the 90-day LIBOR rate but now pays the 90-day LIBOR rate for all
subsequent periods capped at a maximum of 7.1%. The LIBOR rate has not
exceeded 7.1% since inception of the Contract and it was treated, prior
to adoption of SFAS No. 133, as a hedge agreement and accounted for as
such. The Contract was designated as a cash flow hedge of variable
future cash flows associated with the interest on the previous Bank
Credit Agreement, Tranche B Long Term Debt, through May 13, 2004 (the
maturity date of the debt). However, the swap was redesignated to the
Term Loans A and B upon entering into the Foothill Agreement.                                                                     
|
| |  | The following sensitivity analysis summarizes the potential impact on
AMTROL of additional interest expense resulting from a hypothetical 100 basis
point increase in the interest rate indices upon which AMTROLs floating rate
debt instruments are based (000):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

20



---



##### Table of Contents



|            |  |             |        |              |  |           |  |   |     |  |  | 
|----------- |  | ----------- | ------ | ------------ |  | --------- |  | - | --- |  |  | 
|            |  | Y/E 2001    |        |              |  |           |  |   |     | 
|            |  | Exposure    |        | Hypothetical |  | Effect on
|Variable    |  | to Interest |        | Change in    |  | Amtrol   
|Rate Debt   |  | Rate Risk   |        | Rate Index   |  | Interest 
|            |  |             |        |              |  |          
|Revolver    |  | $           | 5,435  |              |  | 100 bps   |  | $ | 54  | 
|           
|           
|           
|           
|Term
Loan A |  |             | 10,242 |              |  | 100 bps   |  |   | 102 | 
|           
|           
|           
|           
|Term
Loan B |  |             | 7,500  |              |  | 100 bps   |  |   | 75  | 
|            |  |             |        |              |  |           |  |   |     | 
|            |  | $           | 23,177 |              |  | 100 bps   |  | $ | 231 | 
|            |  |             |        |              |  |           |  |   |     | 



| |  | The Company believes that the potential effects of a hypothetical
100-basis point increase in its floating rate debt instruments are not
material to cash flows, net income or EBITDA.  
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys Term Loan C and Senior Subordinated Notes are not subject
to interest rate risk since the rate of interest on these securities is
fixed until their respective maturities.




ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



| |  | The index to financial statements is included on page 28 of this report.
| |  | ------------------------------------------------------------------------




ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                    FINANCIAL DISCLOSURE



| |  | None.
| |  | -----

21



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##### Table of Contents






PART III




ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding each of the
directors and executive officers of the Company:

|                       |  |     |    |          |  |                                                                       
|---------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------------
|Name                   |  | Age |    | Position
|                       |  |     |    |         
|Albert D. Indelicato   |  |     | 51 |          |  | President, Chairman
of the Board, Chief
Executive Officer
and Director
|                      
|                      
|                      
|                      
|Larry T. Guillemette   |  |     | 46 |          |  | Executive Vice
President, Chief
Financial Officer
and Treasurer       
|                      
|                      
|                      
|                      
|Joseph L. DePaula      |  |     | 47 |          |  | Vice President-Finance &
Corporate Controller                         
|                      
|                      
|                      
|                      
|Patricia A. Pickrel    |  |     | 51 |          |  | Secretary                                                             
|                      
|                      
|                      
|                      
|John P. Cashman        |  |     | 61 |          |  | Director                                                              
|                      
|                      
|                      
|                      
|Andrew M. Massimilla   |  |     | 60 |          |  | Director                                                              
|                      
|                      
|                      
|                      
|David P. Spalding      |  |     | 47 |          |  | Director                                                              
|                      
|                      
|                      
|                      
|James A. Stern         |  |     | 51 |          |  | Director                                                              
|                      
|                      
|                      
|                      
|Anthony D. Tutrone (1) |  |     | 37 |          |  | Director                                                              



---

|(1) |  | Resigned effective February 22, 2002.
|--- |  | -------------------------------------

Albert D. Indelicato became President, Chairman of the Board and Chief
Executive Officer in June 2000. Previously, Mr. Indelicato served as President
and Chief Executive Officer since joining the Company in July 1998. From 1996
to 1998, he was President of Litorale Holdings, Inc., a consulting firm
specializing in acquisitions. From 1970 to 1996, Mr. Indelicato served in
various managerial capacities of Power Control Technologies and its predecessor
companies, including most recently as Chief Executive Officer and Director.

Larry T. Guillemette became Executive Vice President, Chief Financial Officer
and Treasurer in August 2000. Previously, Mr. Guillemette served as Executive
Vice President-Marketing and Business Development since joining the Company in
1998. From 1991 to 1998, Mr. Guillemette was President and Chief Executive
Officer of Balcrank Products, Inc.

Joseph L. DePaula became Vice President-Finance & Corporate Controller in April
2001. For the previous five-year period thereto, Mr. DePaula served as Chief
Financial Officer of Semi-Alloys Co.

22



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##### Table of Contents



Patricia A. Pickrel, Secretary and General Counsel, joined the Company as
General Counsel in 1998 and became Secretary in 1999. Previously, Ms.
Pickrel was engaged in the private practice of law.

John P. (Jack) Cashman became a Director upon the Merger in November, 1996.
In addition, Mr. Cashman served as Chairman of the Board, Chief Executive
Officer and President upon the Merger until Mr. Indelicato joined the Company
in July 1998. From 1989 until March 1996, Mr. Cashman served as Chairman and
Co-Chief Executive Officer of R. P. Scherer Corporation.

Andrew M. Massimilla became a Director of the Company in June 1998. Mr.
Massimilla has been the sole proprietor of a consulting firm providing
management consulting services to various businesses since 1991.

David P. Spalding became a Director of the Company upon the Merger. Mr.
Spalding has been Vice Chairman of Cypress since its formation in April 1994.
Prior to joining Cypress, Mr. Spalding was Managing Director in the Merchant
Banking Group of Lehman Brothers Inc. since February 1991. Mr. Spalding is
also a director of Lear Corporation, William Scotsman, Inc., and Franks
Nursery & Craft, Inc.

James A. Stern became a Director of the Company upon the Merger. Mr. Stern has
been Chairman of Cypress since its formation in April 1994. Prior to joining
Cypress, Mr. Stern spent his entire career with Lehman Brothers Inc., most
recently as head of the Merchant Banking Group. Mr. Stern is a director of
Lear Corporation, Cinemark USA, Inc, Wesco International Inc. and Franks
Nursery & Craft, Inc.

Anthony D. Tutrone became a Director of the Company upon the Merger. Mr.
Tutrone, who resigned effective February 22, 2002, was a managing director of
Cypress and was a member of the firm since its formation in April 1994. Prior
to joining Cypress, Mr. Tutrone was a member of the Merchant Banking Group of
Lehman Brothers, Inc. Mr. Tutrone was also a director of Wesco International
Inc. and Danka Business Systems PLC.

23



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##### Table of Contents



Compliance with Section 16(a) of the Securities Exchange Act of 1934.

Not applicable




ITEM 11.    EXECUTIVE COMPENSATION

The following table summarizes the compensation paid or accrued by the Company
to its Chief Executive Officer and the four other most highly compensated
executive officers who earned more than $100,000 in salary and bonus in 2001 in
each case for services rendered in all capacities to the Company during the
three year period ended December 31, 2001:

Summary Compensation Table

|                            |  |      |      |            |  |                      |         |              |  |                  |         |  |  |            |        |           |  |   |         | 
|--------------------------- |  | ---- | ---- | ---------- |  | -------------------- | ------- | ------------ |  | ---------------- | ------- |  |  | ---------- | ------ | --------- |  | - | ------- | 
|                            |  |      |      |            |  | Annual               |         |              |  |                  |         |  |  |           
|                            |  |      |      |            |  |                      |         | Long Term    |  |                  |         | 
|                            |  |      |      |            |  | Compensation (a) (f) |         | Compensation |  |                  |         | 
|                            |  |      |      |            |  |                      |         | Awards       |  |                  |         | 
|                            |  |      |      |            |  |                      |         |              |  |                  |         |  |  | Securities |        |           |  |  
|                            |  |      |      |            |  |                      |         |              |  |                  |         |  |  | Underlying |        | All Other
|Name and Principal Position |  | Year |      | Salary (b) |  | Bonus                |         | Options/SARs |  | Compensation (c)
|                            |  |      |      |            |  |                      |         |              |  |                 
|Albert D. Indelicato (e)    |  |      | 2001 |            |  | $                    | 353,850 |              |  | $                |        |  |  |            |       |           |  | $ | 9,120   | 
|                           
|                           
|                           
|                           
|Chairman, President and     |  |      | 2000 |            |  |                      | 350,000 |              |  |                  |        |  |  |            |       |           |  |   | 10,424  | 
|                           
|                           
|                           
|                           
|Chief Executive Officer     |  |      | 1999 |            |  |                      | 300,000 |              |  |                  | 300,000 |  |  |            | 30,500 | (d)       |  |   | 8,317   | 
|                           
|                           
|                           
|                           
|Larry T. Guillemette (e)    |  |      | 2001 |            |  |                      | 185,000 |              |  |                  |        |  |  |            |       |           |  |   | 9,911   | 
|                           
|                           
|                           
|                           
|Executive Vice President,   |  |      | 2000 |            |  |                      | 185,000 |              |  |                  |        |  |  |            |       |           |  |   | 9,878   | 
|                           
|                           
|                           
|                           
|Chief Financial Officer     |  |      | 1999 |            |  |                      | 159,885 |              |  |                  | 131,100 |  |  |            | 11,000 | (d)       |  |   | 134,610 | 
|                           
|                           
|                           
|                           
|and Treasurer               |  |      |      |            |  |                      |         |              |  |                  |         |  |  |            |        |           |  |   |         | 
|                           
|                           
|                           
|                           
|Christopher A. Laus (e)     |  |      | 2001 |            |  |                      | 152,250 |              |  |                  |        |  |  |            |       |           |  |   | 7,390   | 
|                           
|                           
|                           
|                           
|Vice President  Operations |  |      | 2000 |            |  |                      | 152,150 |              |  |                  |        |  |  |            |       |           |  |   | 9,820   | 
|                           
|                           
|                           
|                           
|                            |  |      | 1999 |            |  |                      | 140,000 |              |  |                  | 110,700 |  |  |            | 5,000  | (d)       |  |   | 60,366  | 
|                           
|                           
|                           
|                           
|Robert R. Pape (e)          |  |      | 2001 |            |  |                      | 155,485 |              |  |                  |        |  |  |            |       |           |  |   | 8,010   | 
|                           
|                           
|                           
|                           
|Vice President -            |  |      | 2000 |            |  |                      | 127,413 |              |  |                  |        |  |  |            |       |           |  |   | 1,868   | 
|                           
|                           
|                           
|                           
|Sales & Marketing           |  |      | 1999 |            |  |                      |        |              |  |                  |        |  |  |            |       |           |  |   |        | 
|                           
|                           
|                           
|                           
|Joseph L. DePaula (e)       |  |      | 2001 |            |  |                      | 124,231 |              |  |                  |        |  |  |            |       |           |  |   | 2,853   | 
|                           
|                           
|                           
|                           
|Vice President  Finance    |  |      | 2000 |            |  |                      |        |              |  |                  |        |  |  |            |       |           |  |   |        | 
|                           
|                           
|                           
|                           
|and Corporate Controller    |  |      | 1999 |            |  |                      |        |              |  |                  |        |  |  |            |       |           |  |   |        | 

24



---



##### Table of Contents





---

|(a) |  | Any perquisites or other personal benefits received from the Company by
any of the named executives were substantially less than the reporting
thresholds established by the Securities and Exchange Commission (the
lesser of $50,000 or 10% of the individuals cash compensation).                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Includes portion of salary deferred under the Companys 401(k) Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|   
|   
|   
|(c) |  | Amounts paid in 2001 include the Companys contributions under the
Companys 401(k) Plan in the amount of $7,107, $8,621, $6,325, $6,986 and
$1,667 for Messrs. Indelicato, Guillemette, Laus, Pape, and DePaula,
respectively, and premiums paid by the Company with respect to term life
and long-term disability insurance purchased for such executive officers
in the amount of $2,013, $1,290, $1,065, $1,024 and $1,186 for Messrs.
Indelicato, Guillemette, Laus, Pape and DePaula, respectively.
|   
|   
|   
|   
|(d) |  | These are non-qualified options to purchase common stock of Holdings, the
parent corporation of the Company. One half of such options are time
based and were fully vested on December 31, 2001. The remaining half of
such options are performance based and vest based upon annual and
cumulative performance.                                                                                                                                                                                         
|   
|   
|   
|   
|(e) |  | Mr. Indelicato, Mr. Guillemette, Mr. Laus, Mr. Pape and Mr. DePaula
joined the Company in July 1998, September 1998, September 1998, January
2000 and April 2001, respectively.                                                                                                                                                                                                                                                                                                                          
|   
|   
|   
|   
|(f) |  | Mr. Thomas Sturiale, a former officer of the Company, would have been
listed in this table had he not resigned. Mr. Sturiales 1999, 2000 and
2001 salary and other compensation totaled $175,385 and $168,785, $200,000
and $3,345 and $200,000 and $3,658, respectively.                                                                                                                                                                                                                               

Option Plans

The following table sets forth certain information regarding currently
outstanding options held by the directors and named executive officers as of
December 31, 2001.

Aggregated Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR Values

|                     |  |              |   |                   |  |               |   |                |  |              |               |  |  |  |     | 
|-------------------- |  | ------------ | - | ----------------- |  | ------------- | - | -------------- |  | ------------ | ------------- |  |  |  | --- | 
|                     |  |              |   |                   |  |               |   |                |  | Number of    |               |  |  | 
|                     |  |              |   |                   |  |               |   |                |  | Securities   |               |  |  | 
|                     |  |              |   |                   |  |               |   |                |  | Underlying   |               |  |  | 
|                     |  |              |   |                   |  |               |   |                |  | Unexercised  |               |  |  | 
|                     |  | Number of    |   |                   |  |               |   | Option/SARs at |  |              |               | 
|                     |  | Securities   |   |                   |  |               |   | Calendar Year  |  | Value of    
|                     |  | Underlying   |   |                   |  |               |   | End 2001       |  | Unexercised 
|                     |  | Options/SARs |   |                   |  |               |   | Exercisable/   |  | In-the-Money
|Name                 |  | Exercised    |   | Value Realized($) |  | Unexercisable |   | Options/SAR($)
|                     |  |              |   |                   |  |               |   |               
|John P. Cashman      |  |              | 0 |                   |  |               | 0 |                |  |              | 44,796/0      |  |  |  | 0/0 | 
|                    
|                    
|                    
|                    
|Albert D. Indelicato |  |              | 0 |                   |  |               | 0 |                |  |              | 15,250/15,250 |  |  |  | 0/0 | 
|                    
|                    
|                    
|                    
|Larry T. Guillemette |  |              | 0 |                   |  |               | 0 |                |  |              | 5,500/5,500   |  |  |  | 0/0 | 
|                    
|                    
|                    
|                    
|Andrew M. Massimilla |  |              | 0 |                   |  |               | 0 |                |  |              | 10,520/10,519 |  |  |  | 0/0 | 
|                    
|                    
|                    
|                    
|Robert R. Pape       |  |              | 0 |                   |  |               | 0 |                |  |              | 1,500/1,500   |  |  |  | 0/0 | 

25



---



##### Table of Contents



Supplemental Retirement Plans



| |  | The Company maintains two Supplemental Retirement Plans: Supplemental
Retirement Plan I which covers a former officer and director and
Supplemental Retirement Plan II which covers three former officers. In
the event a participant in either Supplemental Plan dies after
retirement, the participants beneficiary will receive any remaining
benefits which such participant was entitled to receive at the time of
the participants death.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements and Other Transactions



| |  | The Company has entered into an employment agreement (Employment
Agreement) with Mr. Indelicato to secure his continued employment with
the Company. The Employment Agreement provides for an annual base
salary, subject to annual adjustments. In addition, Mr. Indelicato is
entitled to participate in incentive compensation plans and all employee
benefit arrangements generally appropriate to his responsibilities. In
the event Mr. Indelicatos employment is terminated without cause by the
Company, he would be entitled (for a period of 18 months after
termination) to continuation of monthly salary, including the pro rata
portion of any bonus or other incentive compensation otherwise payable
for the fiscal period in which such termination occurs, and maintenance
of all life, disability, medical and health insurance benefits to which
Mr. Indelicato was entitled immediately prior to termination.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On April 18, 2001, the Company and Mr. Thomas Sturiale entered into an
Employment Termination Agreement. Under the terms of the Employment
Termination Agreement, Mr. Sturiale continued to receive his base salary
of $200,000 through December 31, 2001, and the Company repurchased all
outstanding shares of the Companys common stock held by Mr. Sturiale.
The Employment Termination Agreement also includes a
non-solicitation/non-compete covenant for the period beginning December
31, 2001 through December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | During calendar 2000, the Company and Mr. Edward J. Cooney entered into a
Separation Agreement. Under the terms of the Separation Agreement, Mr.
Cooney continued to receive his base salary and was subject to a
non-solicitation/non-compete covenant through September 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  




ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



| |  | The Company is a direct, wholly-owned subsidiary of Holdings. The
following table sets forth information with respect to the beneficial
ownership of Holdings common stock or preferred stock as of March 15 by
(i) each person known to the Company to beneficially own more than 5% of
Holdings outstanding common stock, (ii) each of the Companys directors
and named executive officers and (iii)
all directors and executive officers of the Company as a group. Each
share of Holdings preferred stock is convertible at any time into one
share of Holdings common stock. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26



---



##### Table of Contents



|                                                                           |  |              |         |                 |  |           |      |            |  |  |        |  |  |  |      | 
|-------------------------------------------------------------------------- |  | ------------ | ------- | --------------- |  | --------- | ---- | ---------- |  |  | ------ |  |  |  | ---- | 
|                                                                           |  | Common Stock |         | Preferred Stock
|                                                                           |  |              |         |                
|                                                                           |  | Number       |         | Percentage      |  | Number of |      | Percentage
|Name and Address of Beneficial Owner                                       |  | of Shares    |         | of Total        |  | Shares    |      | of Total  
|                                                                           |  |              |         |                 |  |           |      |           
|Cypress Merchant Banking Partners L.P.(a)(c)                               |  |              | 847,127 |                 |  |           | 79.9 |            |  |  | 95,076 |  |  |  | 93.0 | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|c/o The Cypress Group L.L.C.                                               |  |              |         |                 |  |           |      |            |  |  |        |  |  |  |      | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|65 East 55th Street, 28th Floor                                            |  |              |         |                 |  |           |      |            |  |  |        |  |  |  |      | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|New York, NY 10022                                                         |  |              |         |                 |  |           |      |            |  |  |        |  |  |  |      | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Cypress Offshore Partners L.P.(a)(c)                                       |  |              | 43,873  |                 |  |           | 4.1  |            |  |  | 4,924  |  |  |  | 4.8  | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|c/o The Cypress Group L.L.C.                                               |  |              |         |                 |  |           |      |            |  |  |        |  |  |  |      | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|65 East 55th Street, 28th Floor                                            |  |              |         |                 |  |           |      |            |  |  |        |  |  |  |      | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|New York, NY 10022                                                         |  |              |         |                 |  |           |      |            |  |  |        |  |  |  |      | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|John P. Cashman(b)                                                         |  |              | 62,032  |                 |  |           | 5.8  |            |  |  | 2,235  |  |  |  | 2.2  | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Larry T. Guillemette(b)                                                    |  |              | 12,000  |                 |  |           | 1.1  |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Albert D. Indelicato(b)                                                    |  |              | 33,750  |                 |  |           | 3.2  |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Andrew M. Massimilla(b)                                                    |  |              | 21,039  |                 |  |           | 2.1  |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Robert R. Pape(b)                                                          |  |              | 3,000   |                 |  |           | 0.3  |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Christopher A. Laus                                                        |  |              | 6,050   |                 |  |           | 0.6  |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Joseph L. DePaula                                                          |  |              |        |                 |  |           |     |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|David P. Spalding(a)                                                       |  |              |        |                 |  |           |     |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|James A. Stern(a)                                                          |  |              |        |                 |  |           |     |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Anthony D. Tutrone                                                         |  |              |        |                 |  |           |     |            |  |  |       |  |  |  |     | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|All directors and executive officers as a
group (consisting of 11 persons) |  |              | 138,871 |                 |  |           | 13.1 |            |  |  | 2,235  |  |  |  | 2.2  | 



---

|(a) |  | Cypress Merchant Banking Partners L.P. and
Cypress Offshore Partners L.P. are affiliates of The Cypress
Group L.L.C. Messrs. Spalding and Stern are executives of
The Cypress Group L.L.C. and may be deemed to share beneficial
ownership of the shares shown as beneficially owned by such
Cypress entities. Each of such individuals disclaims
beneficial ownership of such shares. See Item 10, Directors
and Executive Officers of the Company.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Includes 44,796, 11,000, 30,500, 21,039, and
3,000 shares of Common Stock issuable upon exercise of options
granted to Messrs. Cashman, Guillemette, Indelicato,
Massimilla, and Pape, respectively. See Item 11, Executive
Compensation.                                                                                                                                                                                                           
|   
|   
|   
|   
|(c) |  | Includes 57,046 and 2,954 shares of common stock
issuable upon exercise of warrants granted to Cypress Merchant
Banking Partners, L.P. and Cypress Offshore Partners, L.P.                                                                                                                                                                                                                                                                            




ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



| |  | A director
of the Company, Mr. Massimilla, provides management consulting services
to the Company for which he is paid by the Cypress Group L.L.C. The
Company reimburses Cypress for its payments to Mr. Massimilla. During
2001, the amount of such payments was $91,410.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27



---



##### Table of Contents






PART IV




ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements



| |  | The following financial statements are included in a separate section of
this Report commencing on the page numbers specified below:
| |  | ------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                  |  |      |    | 
|----------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                  |  | Page
|Report of Independent Public Accountants                                                                          |  |      | 29 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated Balance Sheets as of December 31, 2000 and 2001                                                      |  |      | 30 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 1999, 2000 and 2001 |  |      | 31 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated Statements of Shareholders Equity for the years
ended December 31, 1999, 2000 and 2001              |  |      | 32 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001                        |  |      | 33 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Notes to Consolidated Financial Statements                                                                        |  |      | 34 | 

(a) (2) Financial Statement Schedule

|                                                                                                                   |  |  |    | 
|------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|Schedule II  Valuation and Qualifying Accounts and Reserves for the
years ended December 31, 1999, 2000 and 2001. |  |  | 48 | 

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

(a) (3) Exhibits



| |  | See List of Exhibits, Page 49.
| |  | ------------------------------

(b) Reports filed on Form 8-K



| |  | No reports were filed on Form 8-K for the period.
| |  | -------------------------------------------------

28



---



##### Table of Contents






Report of Independent Public Accountants

To AMTROL Inc.:

We have audited the accompanying consolidated balance sheets of AMTROL Inc. and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, comprehensive loss, shareholders equity and cash
flows for the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMTROL Inc. and subsidiaries
as of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedule listed in item 14(a)(2) is the responsibility of the Companys
management and is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our opinion, fairly states in
all material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.



| | s/s Arthur Andersen LLP
| | -----------------------

Boston, Massachusetts
March 1, 2002

29



---



##### Table of Contents



AMTROL INC. AND SUBSIDIARIES
Consolidated Balance Sheets(In thousands)Assets

|                                       |                                                                                                             |                      |         |         |        |                        |         |         |        | 
|-------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------- | ------- | ------- | ------ | ---------------------- | ------- | ------- | ------ | 
|                                       |                                                                                                             |                      |         |         |        | Year Ended December 31
|                                       |                                                                                                             |                      |         |        
|                                       |                                                                                                             |                      |         | 2000    |        |                        |         | 2001   
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|Current Assets:                        |                                                                                                             |                      |         |         |        |                        |         |        
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and cash equivalents                                                                                   |                      | $       | 704     |        |                        | $       | 983     |       
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts receivable, less allowance for doubtful accounts of
$833 and $1,365 in 2000 and 2001, respectively |                      |         | 27,591  |        |                        |         | 28,456  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Inventories (Note 3)                                                                                        |                      |         | 20,461  |        |                        |         | 19,785  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Tax refund receivable                                                                                       |                      |         | 1,658   |        |                        |         | 1,623   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes  short-term (Note 6)                                                                 |                      |         | 1,031   |        |                        |         | 1,739   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Prepaid expenses and other                                                                                  |                      |         | 980     |        |                        |         | 680     |       
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|                                       |                                                                                                             | Total current assets |         |         | 52,425 |                        |         |         | 53,266 | 
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|Property, Plant and Equipment, at cost |                                                                                                             |                      | 4,988   |         |        |                        | 4,856   |        
|                                      
|                                      
|                                      
|                                      
|                                       | Land Buildings and improvements                                                                             |                      |         | 12,651  |        |                        |         | 12,462  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Machinery and equipment                                                                                     |                      |         | 48,604  |        |                        |         | 51,783  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Furniture and fixtures                                                                                      |                      |         | 1,210   |        |                        |         | 1,229   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Construction-in-progress and other                                                                          |                      |         | 7,304   |        |                        |         | 5,243   |       
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|                                       |                                                                                                             |                      | 74,757  |         |        |                        | 75,573  |        
|                                      
|                                      
|                                      
|                                      
|                                       | Less: accumulated depreciation and amortization                                                             |                      |         | 28,431  |        |                        |         | 34,381  |       
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|                                       |                                                                                                             |                      | 46,326  |         |        |                        | 41,192  |        
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|Other Assets:                          |                                                                                                             |                      |         |         |        |                        |         |        
|                                      
|                                      
|                                      
|                                      
|                                       | Goodwill                                                                                                    |                      |         | 161,880 |        |                        |         | 157,292 |       
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred financing costs                                                                                    |                      |         | 4,572   |        |                        |         | 4,233   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes  long-term (Note 6)                                                                  |                      |         | 4,755   |        |                        |         | 7,209   |       
|                                      
|                                      
|                                      
|                                      
|                                       | Other                                                                                                       |                      |         | 1,146   |        |                        |         | 1,263   |       
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|                                       |                                                                                                             |                      | 172,353 |         |        |                        | 169,997 |        
|                                       |                                                                                                             |                      |         |         |        |                        |         |        
|                                       |                                                                                                             | $                    | 271,104 |         |        | $                      | 264,455 |        
|                                       |                                                                                                             |                      |         |         |        |                        |         |        

Liabilities and Shareholders Equity

|                                                                                                         |                                               |                            |         |         |        |   |         |         |        | 
|-------------------------------------------------------------------------------------------------------- | --------------------------------------------- | -------------------------- | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|Current Liabilities:                                                                                     |                                               |                            |         |         |        |   |         |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Current maturities of long-term debt (Note 5) |                            | $       | 3,873   |        |   | $       | 2,218   |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Notes payable to banks                        |                            |         | 7,010   |        |   |         | 7,930   |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Accounts payable                              |                            |         | 23,869  |        |   |         | 20,949  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Accrued expenses                              |                            |         | 10,538  |        |   |         | 10,856  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Accrued interest                              |                            |         | 741     |        |   |         | 752     |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Accrued income taxes                          |                            |         | 1,293   |        |   |         | 1,959   |       
|                                                                                                         |                                               |                            |         |         |        |   |         |        
|                                                                                                         |                                               | Total current liabilities  |         |         | 47,324 |   |         |         | 44,664 | 
|                                                                                                         |                                               |                            |         |         |        |   |         |        
|Other Noncurrent Liabilities                                                                             |                                               |                            | 4,439   |         |        |   | 4,061   |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Long-Term Debt, less current maturities (Note 5)                                                         |                                               |                            | 159,469 |         |        |   | 157,511 |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Commitments and Contingencies (Note 9)                                                                   |                                               |                            |        |         |        |   |        |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Shareholders Equity (Note 10)
Capital stock $.01 par value  authorized
1,000 shares,
100 shares issued |                                               |                            |        |         |        |   |        |        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Additional paid-in capital                    |                            |         | 89,903  |        |   |         | 99,273  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Retained deficit                              |                            |         | (26,649 | )      |   |         | (36,064 | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Accumulated other comprehensive loss          |                            |         | (3,382  | )      |   |         | (4,990  | )     
|                                                                                                         |                                               |                            |         |         |        |   |         |        
|                                                                                                         |                                               | Total shareholders equity |         |         | 59,872 |   |         |         | 58,219 | 
|                                                                                                         |                                               |                            |         |         |        |   |         |        
|                                                                                                         |                                               | $                          | 271,104 |         |        | $ | 264,455 |        
|                                                                                                         |                                               |                            |         |         |        |   |         |        

The accompanying notes are an integral part of these consolidated financial statements.

30



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##### Table of Contents



AMTROL INC. AND SUBSIDIARIES

Consolidated Statements of Operations(In thousands)

|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |         |  
|--------------------------------------------------------- | -------------------------------- | - | ---------------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                          |                                  |   | Year Ended December 31
|                                                          |                                  |   |                       
|                                                          |                                  |   | 1999                   |         | 2000 |   | 2001   
|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |        
|Net sales (Note 1)                                        |                                  | $ | 222,053                |         |      | $ | 197,472 |         |   | $ | 182,325 |        
|                                                         
|                                                         
|                                                         
|                                                         
|Cost of goods sold (Note 1)                               |                                  |   | 164,617                |         |      |   | 151,483 |         |   |   | 141,278 |        
|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |        
|                                                          | Gross profit                     |   |                        | 57,436  |      |   |         | 45,989  |   |   |         | 41,047  |  
|                                                         
|                                                         
|                                                         
|                                                         
|Operating expenses:                                       |                                  |   |                        |         |      |   |         |         |   |   |         |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Selling                          |   |                        | 11,130  |      |   |         | 10,991  |   |   |         | 11,400  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | General and administrative       |   |                        | 17,362  |      |   |         | 14,830  |   |   |         | 16,478  |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Amortization of goodwill         |   |                        | 4,463   |      |   |         | 4,463   |   |   |         | 4,451   |  
|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |        
|Income from operations                                    |                                  |   | 24,481                 |         |      |   | 15,705  |         |   |   | 8,718   |        
|                                                         
|                                                         
|                                                         
|                                                         
|Other income (expense):                                   |                                  |   |                        |         |      |   |         |         |   |   |         |        
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Interest expense                 |   |                        | (19,224 | )    |   |         | (19,298 | ) |   |         | (19,235 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Interest income                  |   |                        | 141     |      |   |         | 228     |   |   |         | 134     |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | License and distributorship fees |   |                        | 234     |      |   |         | 210     |   |   |         | 291     |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other, net (Note 4)              |   |                        | 353     |      |   |         | 1,713   |   |   |         | 95      |  
|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |        
|Income (loss) before (benefit)
provision for income taxes |                                  |   | 5,985                  |         |      |   | (1,442  | )       |   |   | (9,997  | )      
|                                                         
|                                                         
|                                                         
|                                                         
|(Benefit) provision for income taxes                      |                                  |   | 4,125                  |         |      |   | 2,704   |         |   |   | (1,026  | )      
|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |        
|Income (loss) before extraordinary item                   |                                  |   | 1,860                  |         |      |   | (4,146  | )       |   |   | (8,971  | )      
|                                                         
|                                                         
|                                                         
|                                                         
|Extraordinary item, net of tax (Note 2)                   |                                  |   |                       |         |      |   |        |         |   |   | (444    | )      
|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |        
|Net income (loss)                                         |                                  | $ | 1,860                  |         |      | $ | (4,146  | )       |   | $ | (9,415  | )      
|                                                          |                                  |   |                        |         |      |   |         |         |   |   |         |        

Consolidated Statements of Comprehensive Loss(In thousands)

|                                         |  |      |                        |      |  |      |        |   |  |   |         |  
|---------------------------------------- |  | ---- | ---------------------- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                         |  |      | Year Ended December 31
|                                         |  |      |                       
|                                         |  | 1999 |                        | 2000 |  | 2001
|                                         |  |      |                        |      |  |      |        |   |  |   |         |  
|Net income (loss)                        |  | $    | 1,860                  |      |  | $    | (4,146 | ) |  | $ | (9,415  | )
|                                        
|                                        
|                                        
|                                        
|Foreign currency translation adjustments |  |      | (2,838                 | )    |  |      | (1,032 | ) |  |   | (382    | )
|                                        
|                                        
|                                        
|                                        
|Derivative instrument valuation          |  |      |                       |      |  |      |       |   |  |   | (511    | )
|                                         |  |      |                        |      |  |      |        |   |  |   |         |  
|Comprehensive loss                       |  | $    | (978                   | )    |  | $    | (5,178 | ) |  | $ | (10,308 | )
|                                         |  |      |                        |      |  |      |        |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.

31



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##### Table of Contents



AMTROL INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders Equity(In thousands)

|                                       |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|-------------------------------------- |  | ------- | - | ------- |  | ---------- | ------ | ------------- |  | - | ------- | ----- |  | ----------- | ------ | -
|                                       |  |         |   |         |  |            |        |               |  |   |         |       |  | Accumulated
|                                       |  |         |   |         |  | Additional |        |               |  |   |         | Other
|                                       |  | Capital |   | Paid-in |  | Retained   |        | Comprehensive
|                                       |  | Stock   |   | Capital |  | (Deficit)  |        | Income (Loss)
|                                       |  |         |   |         |  |            |        |              
|Balance, December 31, 1998             |  | $       |  |         |  | $          | 89,823 |               |  | $ | (24,363 | )     |  | $           | 488    |  
|                                      
|                                      
|                                      
|                                      
|Capital contribution                   |  |         |  |         |  |            | 333    |               |  |   |        |       |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Net income                             |  |         |  |         |  |            |       |               |  |   | 1,860   |       |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Currency translation adjustment        |  |         |  |         |  |            |       |               |  |   |        |       |  |             | (2,838 | )
|                                       |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|Balance, December 31, 1999             |  |         |  |         |  |            | 90,156 |               |  |   | (22,503 | )     |  |             | (2,350 | )
|                                      
|                                      
|                                      
|                                      
|Capital contribution                   |  |         |  |         |  |            | 310    |               |  |   |        |       |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Repurchase of options and common stock |  |         |   |         |  |            | (563   | )             |  |   |        |       |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Net loss                               |  |         |  |         |  |            |       |               |  |   | (4,146  | )     |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Currency translation adjustment        |  |         |  |         |  |            |       |               |  |   |        |       |  |             | (1,032 | )
|                                       |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|Balance, December 31, 2000             |  |         |  |         |  |            | 89,903 |               |  |   | (26,649 | )     |  |             | (3,382 | )
|                                      
|                                      
|                                      
|                                      
|Capital contribution                   |  |         |  |         |  |            | 6,016  |               |  |   |        |       |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Repurchase of options and common stock |  |         |  |         |  |            | (93    | )             |  |   |        |       |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Net loss                               |  |         |  |         |  |            |       |               |  |   | (9,415  | )     |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Warrant valuation                      |  |         |  |         |  |            | 3,447  |               |  |   |        |       |  |             |       |  
|                                      
|                                      
|                                      
|                                      
|Derivative instrument valuation        |  |         |  |         |  |            |       |               |  |   |        |       |  |             | (511   | )
|                                      
|                                      
|                                      
|                                      
|Currency translation adjustment        |  |         |  |         |  |            |       |               |  |   |        |       |  |             | (1,097 | )
|                                       |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|Balance, December 31, 2001             |  | $       |  |         |  | $          | 99,273 |               |  | $ | (36,064 | )     |  | $           | (4,990 | )
|                                       |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  

The accompanying notes are an integral part of these consolidated financial statements.

32



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##### Table of Contents



AMTROL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows(In thousands)

|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |         |        |       |        |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------ | ----------------------- | ------ | ------- | ------ | ---- | ------ | ------- | ------ | ----- | ------ | -
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        | Year Ended December 31,
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                        
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        | 1999                    |        | 2000    |        | 2001
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|Cash Flows Provided by (used in) Operating Activities:       |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Income (loss) before extraordinary item                                                                |                                                | $                                                   | 1,860                                               |        |                         | $      | (4,146  | )      |      | $      | (8,971  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | (Loss) on extraordinary item                                                                           |                                                |                                                     |                                                    |        |                         |        |        |        |      |        | (444    | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation |                                                |                                                     | 8,369                                               |        |                         |        | 8,297   |        |      |        | 8,271   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Amortization                                   |                                                     |                                                     | 5,634  |                         |        |         | 5,708  |      |        |         | 5,611  |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Provision for losses on accounts receivable    |                                                     |                                                     |       |                         |        |         | 13     |      |        |         | 628    |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Loss (gain) on sale of fixed assets            |                                                     |                                                     | 107    |                         |        |         | (1,180 | )    |        |         | 12     |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Changes in operating assets and liabilities:                                                           |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |         |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Accounts receivable, net                       |                                                     |                                                     | (3,213 | )                       |        |         | 2,210  |      |        |         | (2,330 | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Tax refund receivable                          |                                                     |                                                     | 14     |                         |        |         | (888   | )    |        |         | (52    | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Inventory                                      |                                                     |                                                     | 492    |                         |        |         | 1,222  |      |        |         | 238    |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Deferred income taxes  short-term             |                                                     |                                                     | 881    |                         |        |         | 359    |      |        |         | (708   | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Prepaid expenses and other current assets      |                                                     |                                                     | 1,400  |                         |        |         | (80    | )    |        |         | 289    |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Other assets                                   |                                                     |                                                     | (567   | )                       |        |         | (936   | )    |        |         | (738   | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Accounts payable                               |                                                     |                                                     | 3,009  |                         |        |         | 2,024  |      |        |         | (2,224 | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Accrued expenses and other current liabilities |                                                     |                                                     | 2,263  |                         |        |         | (6,579 | )    |        |         | 1,014  |      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Other noncurrent liabilities                   |                                                     |                                                     | (1,643 | )                       |        |         | (1,105 | )    |        |         | (859   | )    
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |                                                                                                        | Deferred income taxes  long-term              |                                                     |                                                     | 3,113  |                         |        |         | 337    |      |        |         | (2,454 | )    
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|                                                             |                                                                                                        |                                                |                                                     | Net cash provided by (used in) operating activities |        |                         | 21,719 |         |        |      | 5,256  |         |        |       | (2,717 | )
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|Cash Flows Used in Investing Activities:                     |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Proceeds from sale of property, plant and equipment                                                    |                                                |                                                     | 895                                                 |        |                         |        | 2,278   |        |      |        | 70      |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Capital expenditures                                                                                   |                                                |                                                     | (5,798                                              | )      |                         |        | (8,375  | )      |      |        | (4,199  | )     
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|                                                             |                                                                                                        |                                                |                                                     | Net cash used in investing activities               |        |                         | (4,903 | )       |        |      | (6,097 | )       |        |       | (4,129 | )
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|Cash Flows Provided by (Used in) Financing Activities:       |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Repayment of long term debt                                                                            |                                                |                                                     | (25,074                                             | )      |                         |        | (21,496 | )      |      |        | (37,662 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Issuance of long term debt                                                                             |                                                |                                                     | 16,800                                              |        |                         |        | 18,700  |        |      |        | 42,550  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Repayment of short term debt                                                                           |                                                |                                                     | (17,988                                             | )      |                         |        | (19,528 | )      |      |        | (29,156 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Issuance of short term debt                                                                            |                                                |                                                     | 8,790                                               |        |                         |        | 23,454  |        |      |        | 29,444  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Extinguishment of senior credit facility (Note 5)                                                      |                                                |                                                     |                                                    |        |                         |        |        |        |      |        | (52,836 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Issuance of new senior debt and warrants (Note 5)                                                      |                                                |                                                     |                                                    |        |                         |        |        |        |      |        | 48,876  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Capital contribution                                                                                   |                                                |                                                     | 333                                                 |        |                         |        | 310     |        |      |        | 6,016   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Repurchase of options and common stock                                                                 |                                                |                                                     |                                                    |        |                         |        | (563    | )      |      |        | (93     | )     
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|                                                             |                                                                                                        |                                                | Net cash provided by (used in) financing activities |                                                     |        | (17,139                 | )      |         |        | 877  |        |         |        | 7,139 |       
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|Net increase (decrease) in cash and cash equivalents         |                                                                                                        |                                                | (323                                                | )                                                   |        |                         | 36     |         |        |      | 293    |        
|                                                            
|                                                            
|                                                            
|                                                            
|Effect of exchange rate changes on cash and cash equivalents |                                                                                                        |                                                | (91                                                 | )                                                   |        |                         | (6     | )       |        |      | (14    | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and cash equivalents, beginning of period               |                                                                                                        |                                                | 1,088                                               |                                                     |        |                         | 674    |         |        |      | 704    |        
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        
|Cash and cash equivalents, end of period                     |                                                                                                        | $                                              | 674                                                 |                                                     |        | $                       | 704    |         |        | $    | 983    |        
|                                                             |                                                                                                        |                                                |                                                     |                                                     |        |                         |        |         |        |      |        |        

The accompanying notes are an integral part of these consolidated financial statements.

33



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    Basis of Presentation



| |  | AMTROL Inc., a Rhode Island corporation, and its wholly-owned subsidiaries
(collectively referred to herein as the Company), designs, manufactures
and markets products used principally in flow control, storage, heating and
other treatment of fluids in the water systems market and selected sectors
of the heating, ventilating and air conditioning (HVAC) market. The
Company offers a broad product line of quality fluid handling products and
services marketed under widely recognized brand names.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is a wholly-owned subsidiary of AMTROL Holdings, Inc.
(Holdings), a Delaware corporation formed by The Cypress Group, L.L.C. in
1996 to effect the acquisition of all of the outstanding common stock of
the Company. Holdings has no other material assets, liabilities or
operations other than those that result from its ownership of the common
stock of the Company.                                                                                                                           

(2)     Summary of Significant Accounting Policies



| |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                
|
| |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.                                                                                                      
|
| |  | Fiscal year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Company uses a calendar fiscal year and three quarterly interim periods
ending on Saturday of the thirteenth week of the quarter.                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Company adopted Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements,as of January 1, 2001. In accordance
with SAB No. 101, the Company recognizes revenue only when there is a valid
contract or purchase order, which includes a fixed price; the goods have
been delivered in accordance with the shipping terms; and there is an
expectation that the collection of the revenue is reasonably assured. The
cumulative effect of this adoption had no net effect on the accompanying
consolidated statements of operations.
|
| |  | The Company generally recognizes revenue upon shipment of its products to
customers. The Company has reclassed shipping/handling fees and costs to
revenue consistent with the presentation required by Emerging Issues Task
Force (EITF) 00-10. An amount of $9.9 million was
restated for the twelve months
ended December 31, 1999.                                                                                                                                                                                                                            

34



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(2)    Summary of Significant Accounting Policies (Continued)



| |  | Volume Rebates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company adopted EITF 00-22, Accounting for Points and Certain Other
Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to Be Delivered in the Future,as of January, 2001.
EITF 00-22 requires the Company to recognize volume rebate program
obligations as a reduction of revenue based on a systematic and rational
allocation of the cost of honoring rebates earned and claimed by each
customer. The Company historically has recorded an accrual for volume
rebates and the cost in the program is recorded against revenue.
Accordingly, there was no impact to the Company in adopting EITF 00-22.
|
| |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Cash and cash equivalents include cash on hand and short-term investments
that are readily convertible into cash with an original maturity to the
Company of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Depreciable Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Property, plant, and equipment are stated on the basis of cost. The
Company provides for depreciation by charges to income (computed on the
straight-line method) in amounts estimated to depreciate the cost of
properties over their estimated useful lives which generally fall within
the following ranges:                                                                                                                                                                                                                                                                                                                                          

|                          |  |             |  | 
|------------------------- |  | ----------- |  | 
|Building and improvements |  | 10-40 years
|                         
|                         
|                         
|                         
|Machinery and equipment   |  | 3-12 years 
|                         
|                         
|                         
|                         
|Furniture and fixtures    |  | 5-20 years 
|                         
|                         
|                         
|                         
|Other                     |  | 3-10 years 



| |  | Leasehold improvements are amortized over the life of the lease or the
estimated useful life of the improvement, whichever is shorter.                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Interest costs, during the construction period, on borrowings used to
finance construction of buildings and related property are included in the
cost of the constructed property. As of December 31, 2001, the Company had
no capitalized interest.                                                                                                                                                                                                                                                                                     
|
| |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The Companys inventories are stated at the lower of cost or market
including material, labor and manufacturing overhead (see Note 3).                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The excess of purchase price over the fair value of net assets acquired is
allocated to goodwill and is included in other assets. Goodwill is being
amortized over 40 years. The Company accounts for long-lived and intangible
assets in accordance with Statement of Financing Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. The Company continually reviews
its intangible assets for events or changes in circumstances which
might indicate

35



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##### Table of Contents





| |  | the carrying amount of the assets may not be recoverable. The Company
assesses the recoverability of the assets by determining whether the
amortization of such intangibles over their remaining lives can be
recovered through projected undiscounted future cash flows. The amount of
impairment, if any, is measured based on the fair value of the impaired
asset. At December 31, 2001, no such impairment of assets was indicated.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(2)    Summary of Significant Accounting Policies (Continued)



| |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In accordance with the requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, the Company has determined the estimated
fair value of its financial instruments using appropriate market
information and valuation methodologies. Considerable judgment is required
to develop the estimates of fair value; thus, the estimates are not
necessarily indicative of the amounts that could be realized in a current
market exchange. The Companys financial instruments consist of cash,
accounts receivable, accounts payable, senior subordinated notes and bank
debt. Based upon information provided by an independent financial advisor,
the Company believes that the fair value of the notes is approximately $60
to $65 of a par value of $100. The carrying value of the remaining assets
and liabilities is a reasonable estimate of their fair market value at
December 31, 2001.
|
| |  | Research and Development Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | All costs for research and development, which amounted to approximately
$1.1 million, $1.0 million, and $0.8 million for the years ended December
31, 1999, 2000, and 2001, respectively, are charged to general and
administrative expenses as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Deferred Financing Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Deferred financing costs are stated at cost as a component of other assets
and amortized over the life of the related debt using the effective
interest method. Amortization of deferred financing costs is included in
interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | As a result of the Companys refinancing its senior debt, $0.4 million, net
of tax, was written off and recorded as a loss on extraordinary item in the
accompanying consolidated statement of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Accrued Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Certain customers are allowed a rebate if agreed upon sales targets are
achieved for a given year. At December 31, 2000 and 2001, the Company had
accrued $3.6 million and $3.8 million, respectively, for such volume
allowances. These amounts are included in accrued expenses in the
accompanying consolidated balance sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Assets and liabilities of non-U.S. operations have been translated into
United States dollars using the year-end rate of exchange. Shareholders
equity has been converted using historical rates, and revenues and expenses
at the average exchange rates prevailing during the year. The cumulative
effect of the resulting translation was reflected as a separate component
of shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

36



---



##### Table of Contents





|(2) |  | Summary of Significant Accounting Policies (Continued)
|--- |  | ------------------------------------------------------
|   



| |  | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company accounts for employee stock options in accordance with SFAS No.
123, Accounting for Stock Based Compensation. As permitted under SFAS No.
123, the Company applies Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employeesto account for its stock
option plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Certain prior year balances have been reclassified to conform with the
current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Accounting for Derivative Instruments and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities,SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities  Deferral of the Effective
Date of FASB Statement No. 133  an Amendment of FASB Statement No. 133and
SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities  an Amendment of FASB Statement No. 133(collectively
SFAS No. 133 as amended). SFAS No. 133 as amended is required to be
adopted no later than the beginning of the first fiscal year beginning on
or after June 15, 2000. These standards were adopted as a change in
accounting principle and do not apply retroactively to financial statements
of prior periods.                                                                                                                                                                                  
|
| |  | The Company has one derivative contract consisting of an interest rate swap
contract and an interest rate cap (the Contract) outstanding as of
December 31, 2001, with an initial notional amount of $15 million. Under
this arrangement, which will mature on June 30, 2004, the Company receives
the 90-day LIBOR rate and pays a fixed rate of 5.85% for the period from
January 1, 2001 through maturity, unless LIBOR increases to 7.1%. If LIBOR
increases to 7.1%, then the Company continues to receive the 90-day LIBOR
rate but now pays the 90-day LIBOR rate for all subsequent periods capped
at a maximum of 7.1%. The LIBOR rate has not exceeded 7.1% since inception
of the Contract and it was treated, prior to adoption of SFAS No. 133, as a
hedge agreement and accounted for as such. The Contract was redesignated
as a cash flow hedge of variable future cash flows associated with the
Foothill Agreement Term Loan A and B Debt.
|
| |  | As of December 31, 2001, the fair value of the instrument ($0.5 million)
was recorded in other non-current liabilities with a corresponding entry to
accumulated other comprehensive loss. Subsequent changes in the fair value
of the swap will be recorded through accumulated other comprehensive loss
(except for changes related to ineffectiveness, which will be recorded
currently through net income). The Company did not realize any
material ineffectiveness during 2001 and does not currently anticipate
any material ineffectiveness under the hedge for 2002.                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | In August 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets.This statement supersedes SFAS Statement No. 121, Accounting for
the Impairment of Long-Lived                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

37



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##### Table of Contents





| |  | Assets and for Long-Lived Assets to Be Disposed of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions.This statement provides for use of one accounting model for
long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and broadens the presentation of discontinued
operations to include more disposal transactions. The provisions of this
statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company is currently evaluating what the impact of adopting
SFAS No. 144 may have and has not yet determined the effect, if any, on its
results of operations or financial condition.                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In July 2001, the FASB released SFAS No. 141, Business Combinationsand
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. As a result of SFAS No. 142, amortization of goodwill to
earnings will cease and instead, the carrying value of goodwill will be
evaluated for impairment on at least an annual basis. Impairment
charges, if any, associated with the initial adoption will be
retroactively recorded as cumulative effect of a change in accounting
principle during 2002. The Company will
comply with SFAS No. 141 for any future business combinations and will
adopt SFAS No. 142 effective January 1, 2002. The Company is evaluating
the impact of adoption of SFAS No. 142 and has not yet
determined whether any impairment loss will be required to be
recorded in its consolidated financial statements in 2002. Amortization of goodwill
for the periods ended December 31, 1999, 2000 and 2001 was $4.5 million,
$4.5 million and $4.5 million, respectively.
|
| |  | In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated retirement costs. SFAS No. 143
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with early adoption
permitted. The Company is currently assessing the impact, if any, of
adopting SFAS No. 143 on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                             

(3)    Inventories



| |  | Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of the following at December 31 (in thousands):
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|                                  |  |      |        |      |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                  |  | 2000 |        | 2001
|                                  |  |      |        |      |  |   |        | 
|Raw materials and work in process |  | $    | 10,322 |      |  | $ | 11,120 | 
|                                 
|                                 
|                                 
|                                 
|Finished goods                    |  |      | 10,139 |      |  |   | 8,665  | 
|                                  |  |      |        |      |  |   |        | 
|                                  |  | $    | 20,461 |      |  | $ | 19,785 | 
|                                  |  |      |        |      |  |   |        | 

38



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##### Table of Contents



(4)    Sale of Property



| |  | On December 18, 2000, the Company sold a parcel of land totaling 11.5 acres
adjacent to the Companys headquarters in West Warwick, Rhode Island. The
gross sale price of $2.1 million resulted in the Company recording a net
book pre-tax gain of $1.1 million. The net book pre-tax gain was not
included in the calculation of EBITDA for purposes of covenant compliance,
consistent with the provisions of the previous credit agreement.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(5)    Long-term Debt and Notes Payable to Banks



| |  | Revolving Credit and Term Loans  New Financing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company, on December 26, 2001 completed a refinancing of its senior
secured credit facility. In its place, the Company entered into two new
credit facilities: a $42.5 million senior first-priority secured credit
facility arranged by Foothill Capital Corporation (the Foothill Facility)
and a $25.0 million senior second-priority secured credit facility with
affiliates of The Cypress Group L.L.C. (the Cypress Facility). Proceeds
from the refinancing were used to repay in full AMTROLs existing credit
facility and to pay fees and expenses related to the refinancing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Foothill Facility consists of senior term loans (the Term Loans) and
a revolving credit facility (the Revolving Credit Facility). A portion
($10.2 million) of the Term Loans (the Term Loan A) is the lower of (a)
$10.5 million and (b) the sum of (i) 80% of the net liquidation percentage
of eligible equipment located in North America and (ii) 60% of the fair
market value of real property located in North America. $7.5 million of
the term loans (the Term Loan B) was also created. The Revolving Credit
Facility is secured by North American accounts receivable and inventories.
Aggregate borrowings under the Revolving Credit Facility are limited to the
lesser of (a) $35.0 million less the aggregate outstanding principal amount
of the Term Loan A less letter of credit usage, and (b) the borrowing base
less letter of credit usage. At December 31, 2001, total availability and
aggregate borrowings under the Revolving Credit Facility were $11.8 million
and $5.4 million, respectively.                                                                                                                                                                                                           
|
| |  | Term Loan A has a five-year maturity with quarterly principal payments of
$426,757 commencing April 1, 2002. The outstanding unpaid principal shall
be due and payable on the date of termination of the Agreement, whether by
its terms, by prepayment, or by acceleration and bears interest at LIBOR
plus 3.5%. Term Loan B has a three-year maturity with quarterly principal
payments of $312,500 commencing April 1, 2002. The outstanding unpaid
principal shall be due and payable on the date of termination of the
Agreement, whether by its terms, by prepayment, or by acceleration and
bears interest at the greater of the Well Fargo Reference Rate
(approximates the prime rate) plus 3.5% and 9.25%. The Revolving Credit
Facility has a five-year maturity. Amounts borrowed under the Revolving
Credit Facility may be repaid and reborrowed at any time during the term of
the Agreement and bear interest at LIBOR plus 2.5% for LIBOR based
borrowings and the Wells Fargo Reference Rate plus 0.5% for non-LIBOR based
borrowings. The Agreement contains certain affirmative and negative
covenants and restrictions. As of December 31, 2001, the Company was in
compliance with the various covenants of the Agreement.
|
| |  | The Cypress Facility consists of a single $25.0 million term loan (the
Term Loan C). Term Loan C has a five-year maturity and bears Pay-In-Kind
(PIK) interest fixed at 12% per annum paid quarterly, which at the lenders
option can be paid in common stock of the Company. In connection with
the Cypress credit facility, Amtrol Holdings, Inc., which                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

39



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| |  | wholly owns Amtrol, has issued the lenders under the Cypress Facility
60,000 warrants to purchase approximately 5.2% of its common stock on a
fully diluted basis. The 60,000 warrants, which have an exercise price of
$.01, were valued at $3.4 million using the Black-Scholes model. This
amount was recorded as an offset to the Term Loan C debt and included in
the Companys equity section. The Company expects that the
effective interest rate associated with Term Loan C will be greater
than 12% given the additional interest expense associated with the
warrants. The Cypress Agreement contains
certain affirmative and negative covenants and restrictions. As of
December 31, 2001, the Company was in compliance with the various covenants
of the Cypress Agreement. Long-term debt consisted of the following at
December 31, (in thousands):
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             |  |      |         |      |  |   |         | 
|-------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                             |  | 2000 |         | 2001
|                                             |  |      |         |      |  |   |         | 
|Revolving Credit Facility                    |  | $    |        |      |  | $ | 5,435   | 
|                                            
|                                            
|                                            
|                                            
|Tranche A Term Loan                          |  |      | 4,394   |      |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|Tranche B Term Loan                          |  |      | 43,318  |      |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|Term Loan A                                  |  |      |        |      |  |   | 10,241  | 
|                                            
|                                            
|                                            
|                                            
|Term Loan B                                  |  |      |        |      |  |   | 7,500   | 
|                                            
|                                            
|                                            
|                                            
|Term Loan C                                  |  |      |        |      |  |   | 21,553  | 
|                                            
|                                            
|                                            
|                                            
|Senior subordinated notes, due 2006, 10.625% |  |      | 115,000 |      |  |   | 115,000 | 
|                                            
|                                            
|                                            
|                                            
|Other                                        |  |      | 630     |      |  |   |        | 
|                                             |  |      |         |      |  |   |         | 
|                                             |  |      | 163,342 |      |  |   | 159,729 | 
|                                            
|                                            
|                                            
|                                            
|Less: Current maturities of long-term debt   |  |      | 3,873   |      |  |   | 2,218   | 
|                                             |  |      |         |      |  |   |         | 
|                                             |  | $    | 159,469 |      |  | $ | 157,511 | 
|                                             |  |      |         |      |  |   |         | 



| |  | Long-term debt repayable in each of the next five years is as follows (in
thousands):
| |  | -------------------------------------------------------------------------------------

|     |  |   |         | 
|---- |  | - | ------- | 
|2003 |  |   | $2,957  | 
|    
|    
|    
|    
|2004 |  |   | 7,020   | 
|    
|    
|    
|    
|2005 |  |   | 1,707   | 
|    
|    
|    
|    
|2006 |  |   | 145,827 | 
|2007 |  |   | 0       | 
|     |  |   |         | 
|     |  | $ | 157,511 | 
|     |  |   |         | 



| |  | Revolving Credit and Term Loans  Previous Financing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company was party to a Bank Credit Agreement dated as of November 13,
1996 (as amended, the Credit Agreement), which provided for secured
borrowings from a syndicate of lenders. The Companys obligations under the
Credit Agreement were guaranteed by AMTROL Holdings Inc. and each direct and indirect domestic
subsidiary of the Company. The Companys obligations under the Credit
Agreement were secured by substantially all assets of the Company and its
subsidiaries. The Credit Agreement was amended on several occasions,
most recently on March 30, 2001 (the March 30

40



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##### Table of Contents



| |  | Amendment). The March 30 Amendment modified certain covenants and provided
for a capital contribution to the Company and purchase of shares by Cypress
Merchant Banking Partners L.P. and/or its affiliates (Cypress) if
necessary to ensure compliance with the financial covenant terms of the
Credit Agreement. In addition, on November 13, 2001 the Company entered
into a Waiver and Consent to Credit Agreement and Capital Contribution
Agreement (the Waiver).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under the Credit Agreement, a portion of the term loans were bearing an
interest rate of LIBOR plus 350 basis points (the Tranche A Term Loans)
and were to mature on May 13, 2002, with quarterly amortization payments
during the term of the loans. The weighted average interest rate on the
Tranche A loans for the approximate 12 months ended December 31, 2001
period was 7.56 percent. The Credit Agreement provided for a Credit
Facility, with an available amount up to $15 million for working capital
needs, which would have matured on May 13, 2002. The remainder of the Term Loans
were bearing an interest rate of LIBOR plus 400 basis points (the Tranche
B Term Loans) which would have matured on May 13, 2004, with nominal
quarterly amortization prior to the maturity of the Tranche A Term Loans
and with the remaining amounts amortizing on a quarterly basis thereafter.
The weighted average interest rate on the Tranche B loans for the
approximate 12 month period ended December 31, 2001 was 8.06 percent.
|
| |  | Senior Subordinated Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Company issued $115.0 million of Senior Subordinated Notes due 2006
(the Notes). The Notes are unsecured obligations of the Company. The
Notes bear interest at a rate of 10.625% per annum which is payable
semi-annually on each June 30 and December 31 commencing on
June 30, 1997. The Notes are redeemable at the option of the Company on or after December
31, 2001. The Notes will be subject to redemption, in whole or in part, at
various redemption prices, declining from 105.313% of the principal amount
to par on and after December 31, 2003. Upon a Change of Control (as
defined in the Indenture), each Note holder has the right to require the
Company to repurchase such holders Notes at a purchase price of 101% of
the principal amount plus accrued interest.
The Indenture contains certain affirmative and negative covenants and
restrictions.
As of December 31, 2001, the Company was in compliance with the various
covenants of the Notes.                                                             
|
| |  | The Company and/or affiliates of the Company, including entities related to
Cypress may, from time to time, purchase the Notes previously issued by the
Company in the open market or by other means.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Short-Term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | AMTROL ALFA has available revolving credit facilities with local banks
providing for short-term working capital loans of up to the equivalent of
approximately $9.0 million. Borrowings under these agreements accrue
interest at LISBOR plus a premium ranging from 0.725% to 1.00%. The
balance outstanding at December 31, 2001 was approximately $6.4 million.
The highest amount outstanding under these facilities in 2001 was
approximately $8.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |  | AMTROL NOVA has available revolving credit facilities with local banks
providing for short-term working capital loans of up to the equivalent of
approximately $1.9 million. Borrowings under the agreement accrue interest
at prevailing market rates which averaged approximately 8.25% during the
period ended December 31, 2001. The balance outstanding at December 31,
2001 was approximately $1.5 million. The highest amount outstanding under
the facility in 2001 was approximately $1.6 million.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Cash paid for interest
amounted to approximately $18.1 million, $18.1 million, and $18.7
million for the years ended December 31, 1999, 2000 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                       

(6)    Income Taxes



| |  | The components of the provision (benefit) for income taxes are as follows
(in thousands):
| |  | -----------------------------------------------------------------------------------------

|          |         |   |                         |       |      |   |       |       |  |   |        |        |  
|--------- | ------- | - | ----------------------- | ----- | ---- | - | ----- | ----- |  | - | ------ | ------ | -
|          |         |   | Year Ended December 31,
|          |         |   |                        
|          |         |   | 1999                    |       | 2000 |   | 2001 
|          |         |   |                         |       |      |   |       |       |  |   |        |        |  
|Current:  |         |   |                         |       |      |   |       |       |  |   |        |       
|         
|         
|         
|         
|          | Federal |   | $                       | 60    |      |   | $     | 48    |  |   | $      |       |  
|         
|         
|         
|         
|          | State   |   |                         |      |      |   |       | 8     |  |   |        | 50     |  
|         
|         
|         
|         
|          | Foreign |   |                         | 1,000 |      |   |       | 1,861 |  |   |        | 1,751  |  
|          |         |   |                         |       |      |   |       |       |  |   |        |        |  
|          |         |   | 1,060                   |       |      |   | 1,917 |       |  |   | 1,801  |       
|         
|         
|         
|         
|Deferred: |         |   |                         |       |      |   |       |       |  |   |        |       
|         
|         
|         
|         
|          | Federal |   |                         | 2,581 |      |   |       | 704   |  |   |        | (2,151 | )
|         
|         
|         
|         
|          | State   |   |                         | 484   |      |   |       | 83    |  |   |        | (435   | )
|         
|         
|         
|         
|          | Foreign |   |                         |      |      |   |       |      |  |   |        | (241   | )
|          |         |   |                         |       |      |   |       |       |  |   |        |        |  
|          |         |   | 3,065                   |       |      |   | 787   |       |  |   | (2,827 | )     
|          |         |   |                         |       |      |   |       |       |  |   |        |        |  
|          |         | $ | 4,125                   |       |      | $ | 2,704 |       |  | $ | (1,026 | )     
|          |         |   |                         |       |      |   |       |       |  |   |        |        |  



| |  | The income tax rate reconciliation of the difference between actual and
statutory effective tax rates is as follows:
| |  | --------------------------------------------------------------------------------------------------------------------

42



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|                                                                  |  |                         |       |      |  |      |       |   |  |   |        |  
|----------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                                                  |  | Year Ended December 31,
|                                                                  |  |                        
|                                                                  |  | 1999                    |       | 2000 |  | 2001
|                                                                  |  |                         |       |      |  |      |       |   |  |   |        |  
|Provision (Benefit)for income
taxes at the Federal statutory
rate |  | $                       | 2,036 |      |  | $    | (490  | ) |  | $ | (3,398 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|State taxes, net of Federal tax
effect                            |  |                         | 239   |      |  |      | (58   | ) |  |   | (254   | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Goodwill amortization not
deductible for tax purposes             |  |                         | 1,517 |      |  |      | 1,517 |   |  |   | 1,512  |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Foreign losses not benefited                                      |  |                         | 178   |      |  |      | 762   |   |  |   | 1,044  |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Foreign taxes                                                     |  |                         | (74   | )    |  |      | 870   |   |  |   | 302    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other, net                                                        |  |                         | 229   |      |  |      | 103   |   |  |   | (232   | )
|                                                                  |  |                         |       |      |  |      |       |   |  |   |        |  
|Recorded (benefit) provision                                      |  | $                       | 4,125 |      |  | $    | 2,704 |   |  | $ | (1,026 | )
|                                                                  |  |                         |       |      |  |      |       |   |  |   |        |  

43



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| |  | Significant items giving rise to deferred tax assets and deferred tax
liabilities at December 31, 2000 and 2001 are as follows (in thousands):
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|                                 |                                  |   |       |     |      |   |       |       | 
|-------------------------------- | -------------------------------- | - | ----- | --- | ---- | - | ----- | ----- | 
|                                 |                                  |   | 2000  |     | 2001
|                                 |                                  |   |       |     |      |   |       |      
|Deferred Income Taxes short-term |                                  |   |       |     |      |   |       |       | 
|                                
|                                
|                                
|                                
|Warranty reserves  current      |                                  | $ | 78    |     |      | $ | 136   |      
|                                
|                                
|                                
|                                
|                                 | Allowance for doubtful accounts  |   |       | 131 |      |   |       | 154   | 
|                                
|                                
|                                
|                                
|                                 | Plant closing reserve            |   |       | 127 |      |   |       |      | 
|                                
|                                
|                                
|                                
|                                 | Accrued vacation                 |   |       | 73  |      |   |       | 61    | 
|                                
|                                
|                                
|                                
|                                 | UNICAP adjustment                |   |       | 218 |      |   |       | 234   | 
|                                
|                                
|                                
|                                
|                                 | Accrued management restructuring |   |       | 348 |      |   |       |      | 
|                                
|                                
|                                
|                                
|                                 | Other                            |   |       | 56  |      |   |       | 1,154 | 
|                                 |                                  |   |       |     |      |   |       |      
|                                 |                                  | $ | 1,031 |     |      | $ | 1,739 |      
|                                 |                                  |   |       |     |      |   |       |      

|                                |                                                 |   |       |        |      |   |        |        |  
|------------------------------- | ----------------------------------------------- | - | ----- | ------ | ---- | - | ------ | ------ | -
|                                |                                                 |   | 2000  |        | 2001
|                                |                                                 |   |       |        |      |   |        |       
|Deferred Income Taxes long-term |                                                 |   |       |        |      |   |        |       
|                               
|                               
|                               
|                               
|Net operating loss carryforward |                                                 | $ | 6,397 |        |      | $ | 10,821 |       
|                               
|                               
|                               
|                               
|                                | Accelerated depreciation                        |   |       | (2,880 | )    |   |        | (2,690 | )
|                               
|                               
|                               
|                               
|                                | Warranty reserves  long-term                   |   |       | 899    |      |   |        | 689    |  
|                               
|                               
|                               
|                               
|                                | Deferred compensation and restricted stock plan |   |       | 611    |      |   |        | 504    |  
|                               
|                               
|                               
|                               
|                                | LIFO revaluation                                |   |       | 375    |      |   |        |       |  
|                               
|                               
|                               
|                               
|                                | NOL valuation                                   |   |       | (764   | )    |   |        | (2,115 | )
|                               
|                               
|                               
|                               
|                                | Other                                           |   |       | 117    |      |   |        |       |  
|                                |                                                 |   |       |        |      |   |        |       
|                                |                                                 | $ | 4,755 |        |      | $ | 7,209  |       
|                                |                                                 |   |       |        |      |   |        |       



| |  | The net deferred tax assets are included in the accompanying consolidated
balance sheets in deferred income taxes-long-term and deferred income
taxes-short-term. Although realization is not assured, management believes
it is more likely than not that the full amount of the net deferred tax
asset will be realized. However, the amount realizable could be reduced if
estimates of future taxable income are reduced. A valuation allowance has
been provided for certain foreign net operating loss carryforwards as it is
more likely than not that the related deferred tax assets for these
carryforwards will not be realizable.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Cash paid for income taxes
amounted to $0.3 million, $0.8 million, and $0.5 million
for the years ended December 31, 1999, 2000 and 2001, respectively. At
December 31, 2001, the Company had net operating loss carryforwards of
approximately $22.8 million expiring in 2012 through 2018.                                                                                                                                                                                                                                                                                                                                                 

(7)    Pension and Profit Sharing Plans



| |  | The Company has a defined contribution 401(k) plan covering substantially
all of its domestic employees. Under the Plan, eligible employees are
permitted to contribute up to 15% of gross pay, not to exceed the maximum
allowed under the Internal Revenue Code. The Company matches each employee
contribution up to 6% of gross pay at a rate of $0.25
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | per $1 of employee contribution. The Company also contributes 3% of each
employees gross pay up to the Social Security taxable wage base and 4% of
amounts in excess of that level up to approximately $0.2 million of wages.
Company contributions to the 401(k) plan totaled approximately $0.8
million, $0.7 million and $0.6 million for the years ended December 31,
1999, 2000 and 2001, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(8)    Lease Commitments



| |  | The Company leases certain plant facilities and equipment. Total rental
expenses charged to operations approximated $1.4 million, $1.5 million and
$1.7 million for the years ended December 31, 1999, 2000 and 2001,
respectively. Minimum rental commitments under all non-cancelable
operating leases are as follows (in thousands):
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  |   |       | 
|---- |  | - | ----- | 
|2002 |  | $ | 905   | 
|    
|    
|    
|    
|2003 |  |   | 196   | 
|    
|    
|    
|    
|2004 |  |   | 154   | 
|    
|    
|    
|    
|2005 |  |   | 23    | 
|    
|    
|    
|    
|2006 |  |   | 3     | 
|     |  |   |       | 
|     |  | $ | 1,281 | 
|     |  |   |       | 



| |  | Certain of the leases provide for renewal options.
| |  | --------------------------------------------------

(9)    Commitments and Contingencies



| |  | At December 31, 2001, the Foothill Agreement contained a sublimit to
support the issuance of letters of credit in the amount of $3.0 million.
At December 31, 2001, letters of credit outstanding amounted to $0.7
million.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is involved in various legal proceedings which, in the opinion
of management, will not result in a material adverse effect on its
financial condition or results of operations.                                

(10)   Stock Plans



| |  | The stock option plan includes both time vesting and performance-based
vesting options. The options which vest over time are subject to fixed
plan accounting under APB 25. Under fixed plan accounting, compensation is
measured as the intrinsic value of the option at date of grant. The
performance-based plans are accounted for as variable plans under APB 25.
Under variable plan accounting, the compensation is measured as the
intrinsic value of the actual number of shares that are awarded at the then
current fair market value of the stock when the performance conditions are
satisfied.                                                
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Certain key employees and directors have been granted options to purchase
common shares of the Companys parent, AMTROL Holdings Inc, under the
AMTROL Holdings 1997 Incentive Stock Plan. As of December 31, 2001,
options to purchase 142,335 shares under the 1997 Plan were outstanding.
The outstanding options include 44,796 non-qualified options which are
exercisable immediately, provided that purchased shares are subject to
repurchase by Holdings at the exercise price until such shares vest under
certain circumstances. The remaining 97,539 options are non-qualified
options issued in 1999 and 2000, 48,770 of which are exercisable.

45



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| |  | The Company applies APB opinion No. 25 to account for its stock option
plans. Accordingly, pursuant to the terms of the AMTROL Holdings 1997
Incentive Stock Plan, no compensation cost related to the issuance of stock
options has been recognized in the Companys financial statements. During
2001, no options were granted under this plan although a portion of
previously issued options did vest. If the Company had
determined compensation cost for options under the provisions of SFAS No.
123, in 2001, 2000 and 1999, the Companys net income would have decreased
approximately $0.2 million, $0.1 million and $1.0 million, respectively. The fair value
of the options granted or vested in 2001, 2000 and 1999 was estimated using the
Black-Scholes option pricing model. The following key assumptions were
used to value the options granted: volatility, 20% in 2001 and 0% in
2000 and 1999; weighted average risk
free rate, 5.00% for all periods; average expected life, 3 years
for all periods. The weighted average
fair value per share of the stock options vested or granted in 2001, 2000 and 1999 amounted
to $3.42, $13.92 and $13.92, respectively. It should be noted that the option pricing model used was
designed to value readily tradeable stock options with relatively short
lives. The options granted are not tradeable. However, management
believes that the assumptions used and the model applied to value the
awards yield a reasonable estimate of the fair value of the options under
the circumstances.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(11)   Business Segment Information



| |  | The Company adopted SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information,in 1998. AMTROLs reportable segments
are delineated geographically. In addition to the geographic delineation,
the segments are managed separately because of their different product
offerings, markets served and cost structures.                                                                                                                                                    
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys North American segment operates manufacturing facilities in
Rhode Island, Kentucky, Maryland and Ohio, and operates a distribution
facility in Ontario, Canada. This segment manufactures and markets
products used principally in flow control, storage, heating, and other
treatment of fluids in the water system and HVAC markets. These products
are marketed throughout the world but primarily in North America, Western
Europe, Asia and Mexico.                        
|
| |  | The Companys European segment includes its facilities in Guimaraes,
Portugal, Donaueschingen, Germany and Swarzedz, Poland. The Guimaraes
facility manufactures returnable and non-returnable steel gas cylinders for
storing cooking, heating and refrigerant gases which are marketed
worldwide. The Donaueschingen facility manufactures residential and
commercial water heaters marketed primarily in Switzerland, Austria and
Germany. The Swarzedz facility refurbishes gas cylinders.
|
| |  | The primary criteria by which financial performance is evaluated and
resources are allocated include revenues and EBITDA. The following is a
summary of key financial data by segment:                                                                                                                                                                                                                                                                                                        

46



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|                                |               |        |          |         |      |         |      |         | December 31 |         |   |         |  
|------------------------------- | ------------- | ------ | -------- | ------- | ---- | ------- | ---- | ------- | ----------- | ------- | - | ------- | -
|                                |               |        |          |         | 1999 |         | 2000 |         | 2001       
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|Net Sales to external customers |               |        |          |         |      |         |      |         |             |         |   |        
|                               
|                               
|                               
|                               
|                                | North America |        |          |         |      |         |      |         |             |         |   |         |  
|                               
|                               
|                               
|                               
|                                |               |        | US       |         | $    | 144,679 |      |         | $           | 129,991 |   |         | $
|                               
|                               
|                               
|                               
|                                |               |        | Other    |         |      | 4,855   |      |         |             | 5,415   |   |         |  
|                               
|                               
|                               
|                               
|                                | Europe        |        |          |         |      |         |      |         |             |         |   |         |  
|                               
|                               
|                               
|                               
|                                |               |        | Portugal |         |      | 56,971  |      |         |             | 51,060  |   |         |  
|                               
|                               
|                               
|                               
|                                |               |        | Other    |         |      | 15,548  |      |         |             | 11,006  |   |         |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|                                | Consolidated  |        | $        | 222,053 |      |         | $    | 197,472 |             |         | $ | 182,325 |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|Income from operations          |               |        |          |         |      |         |      |         |             |         |   |        
|                               
|                               
|                               
|                               
|                                | North America |        | $        | 17,665  |      |         | $    | 14,731  |             |         | $ | 7,717   |  
|                               
|                               
|                               
|                               
|                                | Europe        |        |          | 6,816   |      |         |      | 974     |             |         |   | 1,001   |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|                                | Consolidated  |        | $        | 24,481  |      |         | $    | 15,705  |             |         | $ | 8,718   |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|EBITDA                          |               |        |          |         |      |         |      |         |             |         |   |        
|                               
|                               
|                               
|                               
|                                | North America |        | $        | 29,130  |      |         | $    | 24,668  |             |         | $ | 17,539  |  
|                               
|                               
|                               
|                               
|                                | Europe        |        |          | 9,216   |      |         |      | 5,295   |             |         |   | 4,433   |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|                                | Consolidated  |        | $        | 38,346  |      |         | $    | 29,963  |             |         | $ | 21,972  |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|Long-Lived assets               |               |        |          |         |      |         |      |         |             |         |   |        
|                               
|                               
|                               
|                               
|                                | North America |        |          |         |      |         |      |         |             |         |   |         |  
|                               
|                               
|                               
|                               
|                                |               |        | US       |         | $    | 169,554 |      |         | $           | 164,496 |   |         | $
|                               
|                               
|                               
|                               
|                                |               |        | Other    |         |      | 21      |      |         |             | 13      |   |         |  
|                               
|                               
|                               
|                               
|                                |               | Europe |          |         |      |         |      |         |             |         |   |         |  
|                               
|                               
|                               
|                               
|                                |               |        | Portugal |         |      | 35,572  |      |         |             | 33,982  |   |         |  
|                               
|                               
|                               
|                               
|                                |               |        | Other    |         |      | 8,473   |      |         |             | 9,715   |   |         |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        
|                                | Consolidated  |        | $        | 213,620 |      |         | $    | 208,206 |             |         | $ | 198,484 |  
|                                |               |        |          |         |      |         |      |         |             |         |   |        



| |  | Income from operations for the North America business segment above is
reduced by goodwill amortization for each year presented. EBITDA is
earnings (net income/loss) before interest, taxes, depreciation and
amortization. The method of calculating EBITDA is consistent with the
definition contained in the Foothill Agreement and the Indenture. Readers
of financial statements frequently consider EBITDA a useful tool in
evaluating a companys performance. Therefore, the Company believes that
inclusion of EBITDA is useful supplemental information.
However, EBITDA is not a measure of true cash flow since it does not
incorporate changes of other assets or liabilities that may generate or
require cash. EBITDA is not a generally accepted accounting measure.
Long-Lived assets include property, plant and equipment and goodwill.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Item 14(a)(2) SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(in thousands)

|                                |  |            |       |           |  |            |     |            |  |               |   |              |  |            |      |   |  |   |       | 
|------------------------------- |  | ---------- | ----- | --------- |  | ---------- | --- | ---------- |  | ------------- | - | ------------ |  | ---------- | ---- | - |  | - | ----- | 
|                                |  | Balance at |       |           |  |            |     |            |  |               |   |              |  |            |      |   |  |  
|                                |  | Beginning  |       |           |  |            |     |            |  |               |   | Adjustments/ |  | Balance at
|Consolidated                    |  | of Period  |       | Provision |  | Recoveries |     | Write-Offs |  | End of Period
|                                |  |            |       |           |  |            |     |            |  |              
|Year ended December 31, 1999    |  |            |       |           |  |            |     |            |  |               |   |              |  |            |      |   |  |   |       | 
|                               
|                               
|                               
|                               
|Allowance for doubtful accounts |  | $          | 1,594 |           |  | $          |    |            |  | $             |  |              |  | $          | (406 | ) |  | $ | 1,188 | 
|                               
|                               
|                               
|                               
|Year ended December 31, 2000    |  |            |       |           |  |            |     |            |  |               |   |              |  |            |      |   |  |   |       | 
|                               
|                               
|                               
|                               
|Allowance for doubtful accounts |  |            | 1,188 |           |  |            | 13  |            |  |               |  |              |  |            | (368 | ) |  |   | 833   | 
|                               
|                               
|                               
|                               
|Year ended December 31, 2001    |  |            |       |           |  |            |     |            |  |               |   |              |  |            |      |   |  |   |       | 
|Allowance for doubtful accounts |  |            | 833   |           |  |            | 628 |            |  |               |  |              |  |            | (96  | ) |  |   | 1,365 | 

48



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in West Warwick, Rhode
Island, on the 29th day of March 2002.



| | AMTROL Inc.
| | -----------



| | By:s/s Larry T. Guillemette
           Larry T. Guillemette
| | -----------------------------------------------------------

| | Chief Financial Officer
| | -----------------------



| | Date:March 29, 2002
| | -------------------

Pursuant to the requirements of the Securities Act of 1934, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.

|                                               |  |                                                                                                      |  |               
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                                |  | Date          
|                                               |  |                                                                                                      |  |               
|s/s Albert D. Indelicato

Albert D. Indelicato |  | President, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer) |  | March 29, 2002
|                                              
|                                              
|                                              
|                                              
|                                               |  |                                                                                                      |  |               
|                                              
|                                              
|                                              
|                                              
|s/s Larry T. Guillemette

Larry T. Guillemette |  | Exec. Vice President, Chief Financial
Officer, and Treasurer (Principal
Financial Officer)           |  | March 29, 2002
|                                              
|                                              
|                                              
|                                              
|                                               |  |                                                                                                      |  |               
|s/s John P. Cashman

John P. Cashman           |  | Director                                                                                             |  | March 29, 2002
|                                               |  |                                                                                                      |  |               
|s/s Andrew M. Massimilla

Andrew M. Massimilla |  | Director                                                                                             |  | March 29, 2002
|                                               |  |                                                                                                      |  |               
|s/s David P. Spalding

David P. Spalding       |  | Director                                                                                             |  | March 29, 2002
|                                               |  |                                                                                                      |  |               
|s/s James A. Stern

James A. Stern             |  | Director                                                                                             |  | March 29, 2002

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##### Table of Contents






EXHIBIT INDEX

|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit # |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3.1       |  | Restated Articles of Incorporation of AMTROL Inc. (incorporated by
reference from the Companys Registration Statement on Form S-4,
Registration No. 333-18075, declared effective by the Securities and
Exchange Commission on January 2, 1997).                                                                                                                                                                                                                    
|         
|         
|         
|         
|3.2       |  | Bylaws of AMTROL Inc. (incorporated by reference from the Companys
Registration Statement on Form S-4, Registration No. 333-18075,
declared effective by the Securities and Exchange Commission on
January 2, 1997).                                                                                                                                                                                                                                                
|         
|         
|         
|         
|4.1       |  | Indenture, dated as of November 1, 1996 between AMTROL Acquisition,
Inc. and The Bank of New York (incorporated by reference from the
Companys Registration Statement on Form S-4, Registration No.
333-18075, declared effective by the Securities and Exchange
Commission on January 2, 1997).                                                                                                                                                                    
|         
|         
|         
|         
|4.2       |  | Form of 10-5/8% Senior Subordinated Notes due 2006 (included in
Exhibit 4.1) (incorporated by reference from the Companys
Registration Statement on Form S-4, Registration No. 333-18075,
declared effective by the Securities and Exchange Commission on
January 2, 1997).                                                                                                                                                                                         
|         
|         
|         
|         
|4.3       |  | First Supplemental Indenture, dated as of November 13, 1996, between
AMTROL Inc. and The Bank of New York (incorporated by reference from
the Companys Registration Statement on Form S-4, Registration No.
333-18075, declared effective by the Securities and Exchange
Commission on January 2, 1997).                                                                                                                                                            
|         
|         
|         
|         
|10.1      |  | Credit Agreement, dated as of November 13, 1996, among AMTROL
Acquisition, Inc. and AMTROL Holdings, Inc., various lending
institutions party thereto, Morgan Stanley Senior Funding, Inc. as
documentation agent, and Bankers Trust Company, as administrative
agent (incorporated by reference from the Companys Registration
Statement on Form S-4, Registration No. 333-18075, declared effective
by the Securities and Exchange Commission on January 2, 1997).
|         
|         
|         
|         
|10.1.1    |  | First Amendment to Credit Agreement, dated as of June 24, 1997
(incorporated by reference to the Companys Quarterly Report on Form
10-Q for the quarter ended July 5, 1997).                                                                                                                                                                                                                                                                                        
|         
|         
|         
|         
|10.1.2    |  | Second Amendment to Credit Agreement, dated as of December 12, 1997
(incorporated by reference to Exhibit 7(c) in the Companys Current
Report on Form 8-K dated December 22, 1997).                                                                                                                                                                                                                                                                                 
|         
|         
|         
|         
|10.1.3    |  | Third amendment to the Credit Agreement dated as of June 24, 1998
(incorporated by reference to the Companys Quarterly report on Form
10-Q for the quarter ended July 4, 1998).                                                                                                                                                                                                                                                                                     
|         
|         
|         
|         
|10.1.4    |  | Fourth amendment to the Credit Agreement dated as of July 13, 1998
(incorporated by reference to the Companys Quarterly report on Form
10-Q for the third quarter ended October 3, 1998).                                                                                                                                                                                                                                                                           
|         
|         
|         
|         
|10.1.5    |  | Fifth amendment to the Credit Agreement dated as of March 30,
2001 (incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000).                                                                                                                                                                                                                                                                              
|         
|         
|         
|         
|10.2      |  | AMTROL Inc. Pension Plan and Trust (incorporated by reference from the
Companys Registration Statement on Form S-1, Registration No.
33-48413, declared effective by the Commission on March 18, 1993).*                                                                                                                                                                                                                                                            
|         
|         
|         
|         
|10.3      |  | Amendments to AMTROL Inc. Pension Plan and Trust (incorporated by
reference from the Companys Registration Statement on Form S-1,
Registration No. 33-48413, declared effective by the Securities and
Exchange Commission on March 18, 1993).*                                                                                                                                                                                                                      

50



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##### Table of Contents



|      |  |                                                                                                                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.4  |  | AMTROL Inc. Executive Cash Bonus Plan (incorporated by reference from
the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).*                                                       
|     
|     
|     
|     
|10.5  |  | AMTROL Inc. Supplemental Retirement Plan II (incorporated by reference
from the Companys Registration Statement on Form S-1, Registration
No. 33-48413, declared effective by the Commission on March 18,
1993).*  
|     
|     
|     
|     
|10.6  |  | First Amendment to AMTROL Inc. Supplemental Retirement Plan II
(incorporated by reference from the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1995).*                              
|     
|     
|     
|     
|10.10 |  | Employment Agreement dated June 24, 1998 by and between AMTROL Inc.
and Albert D. Indelicato (incorporated by reference from the Companys
Annual Report on Form 10-K for the fiscal year ended December 31,
1998).*
|     
|     
|     
|     
|10.11 |  | AMTROL Holdings Inc. 1997 Incentive Stock Plan dated December 16,
1997 (incorporated by reference to the Companys Annual Report on
Form 10-K for the year ended December 31, 1997).*                               
|     
|     
|     
|     
|10.12 |  | Loan and Security Agreement dated December 26, 2001 among Amtrol
Holdings, Inc., Amtrol Inc. and WaterSoft Inc. and Foothill Capital
Corporation as the Arranger and Administrative Agent.                          
|     
|     
|     
|     
|10.13 |  | Loan and Security Agreement dated December 26, 2001 among Amtrol
Holdings, Inc., Amtrol Inc. and WaterSoft Inc. and Cypress Merchant
Banking Partners, L.P. and Cypress Offshore Partners, L.P.                     
|     
|     
|     
|     
|10.14 |  | Subsidiary Guaranty Agreement dated December 26, 2001 among Amtrol
International Investments, Inc. and Cypress Merchant Banking Partners,
L.P. and Cypress Offshore Partners, L.P.                                  
|     
|     
|     
|     
|10.15 |  | Contribution Agreement dated December 26, 2001 among Amtrol Holdings,
Inc., Amtrol Inc. and WaterSoft Inc. and Cypress Merchant Banking
Partners, L.P. and Cypress Offshore Partners, L.P.                          
|     
|     
|     
|     
|10.16 |  | Subsidiary Guaranty Agreement dated December 26, 2001 among Amtrol
International Investments, Inc. and Foothill Capital Corporation.                                                                                
|     
|     
|     
|     
|10.17 |  | Contribution Agreement dated December 26, 2001 among Amtrol Holdings,
Inc., Amtrol Inc. and WaterSoft Inc. and Foothill Capital Corporation.                                                                        
|     
|     
|     
|     
|18    |  | Preferability letter regarding change in accounting policy from LIFO
to FIFO (incorporated by reference from the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).                 
|     
|     
|     
|     
|21    |  | Subsidiaries of AMTROL Inc.                                                                                                                                                                                         
|     
|     
|     
|     
|99    |  | Letter to Commission Pursuant to Temporary Note 3T                                                                                                                                                                  





|* |  | Management contract or compensatory plan arrangement.
|- |  | -----------------------------------------------------

51